Earn-Out Consideration. In addition to the Initial Purchase Price, the Sellers may receive additional consideration of up to $12,000,000 (the “Maximum Earnout”) payable in cash, over a three-year earn-out period (the “Earn-Out Period”) following the Closing Date. The earn-out, described below and credit as adjustment to earn-out agreement as set forth in Exhibit “A”, will be paid in accordance with the following terms (it is being understood that the aggregate of all Earn-Out payments paid to Sellers pursuant to this Agreement shall not exceed the Maximum Earnout under any circumstances): (a) With respect to the period of the first thirty-six months of operations as a unit of the Purchaser (the “Earn-Out Period”), the Purchaser will make an earn-out payment (the “Earn-Out Payment”) based upon the Company’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) during each year of the Earn-Out Period. For purposes of determining the earn-out, EBITDA is defined as earnings from operations of the Company determined in accordance with GAAP. The Purchaser’s corporate-allocated overhead (excluding any charges borne by the Purchaser solely for the benefit of the Company that otherwise would have been incurred directly by the Company in the normal course of business regardless of the Transaction1) shall not be included. Prior to each year of the Earn-Out Period, Purchaser and Seller Representative shall mutually agree on an estimated budget of charges that Purchaser reasonably anticipates incurring solely for the benefit of the Company under the parenthetical in the immediately preceding sentence. Purchaser shall also provide Seller Representative, on a monthly basis during the Earn-Out Period, a statement showing in reasonable detail all such charges actually incurred by Purchaser for the prior month. To the extent such charges exceed the amounts the Company would reasonably have been expected to incur had charges been borne by the Company directly and not by Purchaser, and are not offset by cost reductions provided from other expense line items supplied by or procured by Purchaser, the Company will receive a credit towards EBITDA in an amount equal to the excess. To the extent that such Purchaser supplied cost reductions exceed any increases in costs, the Company will receive a debit against its EBITDA in an amount equal to the excess. If the Closing Date occurs on a date that is not the end of one of Purchaser’s fiscal months, the Earn-Out Period will begin with the first full fiscal month of Purchaser’s ownership. (b) If the Company generates EBITDA of or exceeding $[*] (the “Year 1 EBITDA Target”) during the period beginning on the Closing Date and ending on the day prior to the first anniversary of the Closing Date (such period, “Year 1”), the Purchaser will make an Earn-Out Payment of $4,000,000. For EBITDA of less than $[*] but more than $[*] for Year 1, the amount of the Earn-Out Payment will be calculated pro rata on the amount by which the Company’s EBITDA is between $[*] and $[*]. No Earn-Out Payment is payable for Year 1 if the Company’s EBITDA is less than $[*]. The Earn-Out Payment is to be paid in cash to the Seller Representative for distribution to the Sellers under Sections 2.2(b) and (c) within eighty-five (85) days after the first anniversary of the Closing Date, or ten (10) days after the resolution of an Earn-Out Disagreement. If the maximum Earn-Out Payment of $4,000,000 is not fully achieved in Year 1, the balance not earned shall be carried over into Year 2 as an addition to the maximum $4,000,000 Earn-Out Payment potentially earned in that period. Additionally, if the Company’s EBITDA for Year 1 exceeds or falls short of the Year 1 EBITDA Target, the excess shall be carried over into Year 2 as a credit or the shortfall shall be carried into Year 2 as a debit, to the Company’s EBITDA for Year 2. Year 1 Example #2: if the Company’s EBITDA for Year 1 is $[*], the Earn-Out Payment would be [*]% of the $4,000,000 total available for that period, and $[*] of the Company’s EBITDA for that period ([*] – [*]) would be carried over into Year 2 and credited towards the Company’s EBITDA for Year 2. (c) If the Company generates EBITDA of or exceeding $[*] (the “Year 2 EBITDA Target”) during the period beginning on the first anniversary of the Closing Date and ending on the day prior to the second anniversary of the Closing Date (such period, “Year 2”), the Purchaser will make an Earn-Out Payment of $4,000,000 plus any carry over from Year 1 as described in (b) above. For EBITDA of less than $[*] but more than $[*] for Year 2, the Earn-Out Payment will be calculated pro rata on the amount by which the Company’s EBITDA is between $[*] and $[*]. No Earn-Out Payment is payable for Year 2 if the Company’s EBITDA is less than $[*]. The Earn-Out Payment is to be paid in cash to the Seller Representative for distribution to the Sellers under Section 2.2(b) within eighty-five (85) days after the second anniversary of the Closing Date, or ten (10) days after the resolution of an Earn-Out Disagreement. If the maximum Earn-Out Payment is not fully achieved in Year 2 (which maximum shall be $4,000,000 plus any portion of the Earn-Out not fully achieved in Year 1 that has been carried over into Year 2), the balance shall be carried over into Year 3. Additionally, if the Company’s EBITDA for Year 2 exceeds or falls short of the Year 2 EBITDA Target, the excess shall be carried over into Year 3 as a credit or the shortfall shall be carried into Year 3 as a debit, to the Company’s EBITDA for Year 3.
Appears in 1 contract
Earn-Out Consideration. In addition Certain capitalized terms used in this Section 1.7 are defined in Section 1.7(d) below.
(a) The Shareholder shall be entitled, subject to the Initial Purchase Priceterms and conditions hereof, to receive as additional cash consideration for the Sellers may receive transfer of the Shares, additional consideration of up to $12,000,000 (the “Maximum Earnout”) payable in cash, over a three-year earn-out period cash payments (the “Earn-Out PeriodConsideration”) based on the Annual Revenue of the Buyer during each of the three consecutive twelve-month periods following the Closing Date. The earn-outDate (each, described below and credit as adjustment to earn-out agreement as set forth in Exhibit an “A”, will be paid in accordance with the following terms (it is being understood that the aggregate of all Earn-Out payments Period” and the entire period from the Closing Date to the end of the final Earn-Out Period, the “Earn-Out Term”), as follows:
(i) If the Annual Revenue for each of the first two Earn-Out Periods exceeds the Minimum Revenue for such Earn-Out Period, then (A) for the First Earn-Out Period, the Shareholder shall be entitled to be paid one dollar for each dollar of Annual Revenue achieved for such Earn-Out Period in excess of the Minimum Revenue for such Earn-Out Period up to Sellers pursuant to this Agreement Annual Revenue of seven million five hundred thousand dollars ($7,500,000) (i.e. such payment shall not exceed the Maximum Earnout under any circumstances):
(a) With respect to the period of the first thirty-six months of operations as a unit of the Purchaser (the “Status Quo Payment for such Earn-Out Period”), and (B) for the Purchaser will make an earn-out payment (the “Second Earn-Out Period, the Shareholder shall be entitled to be paid the Maximum Status Quo Payment for such Earn-Out Period, in each case together with interest on such payment at the rate of five percent (5%) for the period from the Closing Date until such payment is made (such payments described in this Section 1.7(a)(i) collectively being the “Status Quo Payments” and each individually being a “Status Quo Payment”).
(ii) based upon In addition to the Company’s earnings before interestforegoing, taxesthe Shareholder shall receive the Earn-Out Payment (as defined and calculated below) for each Earn-Out Period. In the event that the Percentage Growth Achieved for the Third Earn-Out Period is less than one hundred percent (100%), depreciation then the Unearned Earn-Out for the Third Earn-Out Period shall be forfeited, and amortization (“EBITDA”) during each year Buyer shall have no further obligation to pay such amount to the Shareholder. Example calculations of the Earn-Out Period. For purposes of determining the earn-out, EBITDA is defined as earnings from operations of the Company determined in accordance with GAAP. The Purchaser’s corporate-allocated overhead (excluding any charges borne by the Purchaser solely Payments for the benefit three Earn-Out Periods are set forth on Schedule 1.7(a)(ii).
(b) Annual Revenue and the resulting Status Quo Payment (as applicable) and Earn-Out Payment for each Earn-Out Period shall be determined, and Status Quo Payments and Earn-Out Payments shall be paid, as follows:
(i) Within thirty (30) days following the end of the Company that otherwise would have been incurred directly by the Company in the normal course of business regardless of the Transaction1) shall not be included. Prior to each year of the Earn-Out Period, Purchaser and Seller Representative shall mutually agree on an estimated budget of charges that Purchaser reasonably anticipates incurring solely for Buyer will deliver to the benefit Shareholder a statement in writing setting forth Buyer’s determination of the Company under the parenthetical in the immediately preceding sentence. Purchaser shall also provide Seller Representative, on a monthly basis during the Annual Revenue for such Earn-Out Period, and a statement showing calculation of the resulting Status Quo Payment (as applicable) and Earn-Out Payment to be made by Buyer for such Earn-Out Period (each such statement, a “Buyer Earn-Out Statement”).
(ii) The Shareholder shall have a period of up to thirty (30) days following the Shareholder’s receipt of a Buyer Earn-Out Statement to review Buyer’s calculation of Annual Revenue and the resulting Status Quo Payment (as applicable) and Earn-Out Payment. In connection with the review of the Buyer Earn-Out Statement, Buyer shall provide to the Shareholder reasonable access to all relevant books and records and personnel of the Company. If, as a result of such review, the Shareholder disagrees with Buyer’s calculations, the Shareholder shall deliver to Buyer a written notice of disagreement (a “Dispute Notice”) prior to the expiration of such thirty (30) day review period setting forth the basis for such dispute. Upon Buyer’s receipt of a Dispute Notice, Buyer and the Shareholder agree to negotiate in reasonable detail good faith to resolve the dispute set forth in the Dispute Notice. If Buyer and the Shareholder have not resolved the dispute within thirty (30) days following Buyer’s receipt of the Dispute Notice (or such longer period of time as Buyer and the Shareholder may mutually agree), then Buyer and the Shareholder agree to finally resolve such dispute in accordance with Section 1.7(b)(iii) below.
(iii) If Buyer and the Shareholder cannot reach agreement as described in Section 1.7(b)(ii) above, then the dispute shall be promptly referred to an Accounting Arbitrator, who shall be selected in accordance with the same process described in Section 1.6(c), for binding resolution. The Accounting Arbitrator shall determine the applicable Status Quo Payment (as applicable) and Earn-Out Payment owed at such time, in accordance with the provisions of this Agreement, as promptly as may be reasonably practicable and shall endeavor to complete such process within a period of no more than sixty (60) days. The determination of the Accounting Arbitrator, absent manifest error, shall be final and binding on Buyer and the Shareholder, effective as of the date the Accounting Arbitrator’s written opinion is received by Buyer and the Shareholder. Buyer and the Shareholder shall each pay their own respective costs and expenses in connection with the foregoing dispute resolution process, but Buyer and the Shareholder shall share equally the costs and expenses of the Accounting Arbitrator; provided that if there is an Erroneous Party as described in Section 1.6(c) with respect to the disputed items at issue, then the Erroneous Party shall pay all such charges actually incurred by Purchaser fees and expenses of the Accounting Arbitrator.
(iv) In the event that the parties agree (based on the calculations set forth in the Buyer Earn-Out Statement and the Dispute Notice for the prior monthFirst Earn-Out Period or the Second Earn-Out Period) that Buyer has achieved the Minimum Revenue for such Earn-Out Period, then Buyer shall pay to the Shareholder the relevant Status Quo Payment within ten (10) Business Days following the Shareholder’s delivery of the relevant Dispute Notice. To Prior to the extent such charges exceed date that is the amounts later of (A) ten (10) days following the Company would reasonably have been expected final determination of the Status Quo Payment (as applicable) and Earn-Out Payment in accordance with this Section 1.7(b) (whether by failure of the Shareholder to incur had charges been borne deliver a Dispute Notice within the required time period, by agreement of the Company directly and not parties, or by Purchaserreceipt of an opinion of the Accounting Arbitrator), and are not offset by cost reductions provided from other expense line items supplied by or procured by Purchaser(B) two (2) months following the end of the relevant Earn-Out Period, Buyer shall pay to the Company will receive a credit towards EBITDA in Shareholder an amount in cash equal to the excess. To the extent that such Purchaser supplied cost reductions exceed any increases in costsStatus Quo Payment (as applicable, the Company will receive a debit against its EBITDA in an amount equal and if not already paid pursuant to the excess. If the Closing Date occurs on a date that is not the end first sentence of one of Purchaser’s fiscal months, this Section 1.7(b)(iv)) plus the Earn-Out Period will begin Payment, each as finally determined in accordance with the first full fiscal month of Purchaser’s ownershipthis Section 1.7(b).
(bc) If the Company generates EBITDA The calculation of or exceeding $[*] (the “Year 1 EBITDA Target”) during the period beginning on the Closing Date and ending on the day prior to the first anniversary of the Closing Date (such period, “Year 1”), the Purchaser will make an Earn-Out Payment of $4,000,000Consideration set forth above assumes that the Shareholder remains employed by the Company during the entire Earn-Out Term. For EBITDA of less than $[*] but more than $[*] for Year 1Otherwise, the amount following adjustments shall be made to the calculation of Earn-Out Consideration:
(i) In the event that the Shareholder voluntarily terminates his employment with the Company or Buyer, or Shareholder is terminated for Cause (as defined in Shareholder’s employment agreement with the Company and Buyer), or in the event of the Shareholder’s death or disability, during any Earn-Out Period, then:
(A) the Shareholder shall not be entitled to any Earn-Out Payments for any subsequent Earn-Out Period; and
(B) the Earn-Out Payment will be calculated pro rata on the amount by which the Company’s EBITDA is between $[*] and $[*]. No for such Earn-Out Payment is payable for Year 1 if the Company’s EBITDA is less than $[*]. The Period shall be adjusted as follows:
(1) Unearned Earn-Out for any previous Earn-Out Period shall not be included in the calculation of the Maximum Payment for such Earn-Out Period; (2) the Annual Revenue for such Earn-Out Period (the “Annualized Revenue”) shall equal (a) the Annual Revenue for such Earn-Out Period through the month during which the Shareholder’s employment is to be paid in cash to terminated as described above (such number of months, the Seller Representative for distribution to “Elapsed Months”), divided by (b) the Sellers under Sections 2.2(b) and number of Elapsed Months, multiplied by (c) within eighty-five twelve (8512); (3) days after the first anniversary of the Closing Date, or ten (10) days after the resolution of an Percentage Growth Achieved for such Earn-Out Disagreement. If Period shall be determined by replacing Annual Revenue in the maximum definition of Actual Revenue Growth with Annualized Revenue; and (4) the Maximum Payment for such Earn-Out Period shall equal the Maximum Payment that would otherwise have been applicable, divided by twelve (12), and multiplied by the number of $4,000,000 Elapsed Months.
(ii) In the event that the Shareholder is not fully achieved terminated by the Company or Buyer after the Closing without Cause or the Shareholder terminates his employment for Good Reason (as such terms are defined in Year 1, Shareholder’s employment agreement with the balance not earned shall be carried over into Year 2 as an addition to the maximum $4,000,000 Company and Buyer) during any Earn-Out Period, then the Shareholder shall be entitled to receive the Maximum Payment potentially earned for such Earn-Out Period and any subsequent Earn-Out Period(s), provided that no Unearned Earn-Outs relating to any previous Earn-Out Period(s) shall be included in the calculation of such Maximum Payment(s).
(iii) In the event that period. Additionally, if the CompanyShareholder’s EBITDA for Year 1 exceeds employment by the Company or falls short Buyer is terminated after the Closing before the expiration of the Year 1 EBITDA TargetFirst Earn-Out Period and/or the Second Earn-Out Period for any reason, then the excess Shareholder shall still be carried over into Year 2 as a credit or entitled to receive the shortfall shall be carried into Year 2 as a debitStatus Quo Payment to which he would otherwise have been entitled (at the same time at which he would have otherwise been entitled to such payment, to and not, for purposes of clarification, at the Company’s EBITDA time of such termination) based on the Annual Revenue for Year 2the relevant time periods.
Year 1 Example #2: if the Company’s EBITDA for Year 1 is $[*], (d) For purposes of calculating the Earn-Out Payment would be [*]% of the $4,000,000 total available for that periodConsideration, and $[*] of the Company’s EBITDA for that period ([*] – [*]) would be carried over into Year 2 and credited towards the Company’s EBITDA for Year 2.
(c) If the Company generates EBITDA of or exceeding $[*] (the “Year 2 EBITDA Target”) during the period beginning on the first anniversary of the Closing Date and ending on the day prior subject to the second anniversary terms of the Closing Date (such period, “Year 2”Section 1.7(c), the Purchaser will make an Earn-Out Payment of $4,000,000 plus any carry over from Year 1 as described in (b) above. For EBITDA of less than $[*] but more than $[*] for Year 2, following terms shall have the Earn-Out Payment will be calculated pro rata on the amount by which the Company’s EBITDA is between $[*] and $[*]. No Earn-Out Payment is payable for Year 2 if the Company’s EBITDA is less than $[*]. The Earn-Out Payment is to be paid in cash to the Seller Representative for distribution to the Sellers under Section 2.2(b) within eighty-five (85) days after the second anniversary of the Closing Date, or ten (10) days after the resolution of an Earn-Out Disagreement. If the maximum Earn-Out Payment is not fully achieved in Year 2 (which maximum shall be $4,000,000 plus any portion of the Earn-Out not fully achieved in Year 1 that has been carried over into Year 2), the balance shall be carried over into Year 3. Additionally, if the Company’s EBITDA for Year 2 exceeds or falls short of the Year 2 EBITDA Target, the excess shall be carried over into Year 3 as a credit or the shortfall shall be carried into Year 3 as a debit, to the Company’s EBITDA for Year 3.following meanings:
Appears in 1 contract
Sources: Stock Purchase Agreement (Sm&A)
Earn-Out Consideration. In addition The Buyer agrees to pay to the Initial Purchase Priceholders of CPS and Common Stock and to holders of Vested Stock Options outstanding immediately before the Effective Time, the Sellers may receive additional consideration excess of up the Earn-Out Consideration determined pursuant to $12,000,000 this Section 2.07 less the amount of any settled or pending claims that are ultimately determined in favor of Buyer for breach of any Extended Representations pursuant to Article XII hereof.
(a) Determination of Sales of [xxxx]. As promptly as practicable after January 31, 2009 but no earlier than the “Maximum Earnout”) payable in cashfiling date of the Quarterly Report on Form 10-Q by the Buyer with the Securities and Exchange Commission for the second quarter of the Buyer’s 2009 fiscal year (such quarter ending on January 31, over 2009), the Chief Financial Officer of the Buyer shall prepare a three-year earn-out period statement (the “Earn-Out PeriodStatement”) following reflecting the Closing Date. The earn-out, described below and credit as adjustment to earn-out agreement as set forth in Exhibit “A”, will be paid in accordance with revenue recognized from sales of the following terms (it is being understood that the aggregate of all Earn-Out payments paid to Sellers pursuant to this Agreement shall not exceed the Maximum Earnout under any circumstances):
(a) With respect to Buyer’s [xxxx] during the period of the first thirty-six months of operations as a unit of the Purchaser Buyer’s fiscal quarter ending April 26, 2008 through Buyer’s fiscal quarter ending January 31, 2009 (the “Earn-Out Period”). When measuring revenue recognized from sales of [xxxx], only revenue associated with the [xxxx] shall be considered (e.g., if a [xxxx], the Purchaser will make an earn-out payment (revenue recognized from the “Earn-Out Payment”) based upon sale of such [xxxx] shall be deemed to be the Companyaverage selling price of Buyer’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) [xxxx] during each year of the applicable fiscal quarter). The Buyer shall deliver the Earn-Out Period. For purposes of determining Statement to the earn-outStockholders’ Representative within ten (10) days following final determination, EBITDA is defined as earnings from operations and not later than the filing date of the Company determined in accordance with GAAPQuarterly Report on Form 10-Q referred above. The Purchaser’s corporate-allocated overhead (excluding any charges borne by If the Purchaser solely for the benefit revenue recognized from sales of the Company that otherwise would have been incurred directly by the Company in the normal course of business regardless of the Transaction1) shall not be included. Prior to each year of the Earn-Out Period, Purchaser and Seller Representative shall mutually agree on an estimated budget of charges that Purchaser reasonably anticipates incurring solely for the benefit of the Company under the parenthetical in the immediately preceding sentence. Purchaser shall also provide Seller Representative, on a monthly basis [xxxx] during the Earn-Out Period, a statement showing in reasonable detail all such charges actually incurred by Purchaser for the prior month. To the extent such charges exceed the amounts the Company would reasonably have been expected to incur had charges been borne by the Company directly and not by Purchaser, and are not offset by cost reductions provided from other expense line items supplied by or procured by Purchaser, the Company will receive a credit towards EBITDA in an amount Period (1) is equal to or more than $[xxxx] the excess. To the extent that Earn-Out Consideration shall be $[xxxx] and such Purchaser supplied cost reductions exceed any increases in costs, the Company will receive a debit against its EBITDA in an amount shall be linearly interpolated down to $1.00 for revenue amounts recognized between $[xxxx] and $[xxxx] or (2) is equal to or more than $[xxxx] the excessEarn-Out Consideration shall be $[xxxx] and such amount shall be linearly interpolated down to $[xxxx] for revenue amounts recognized between $[xxxx] and $[xxxx]. If Notwithstanding anything to the Closing Date occurs on a date that is not contrary contained herein, if the end revenue recognized from sales of one of Purchaser’s fiscal months, [xxxx] during the Earn-Out Period will begin with the first full fiscal month of Purchaser’s ownership.
(b) If the Company generates EBITDA of or exceeding $[*] (the “Year 1 EBITDA Target”) during the period beginning on the Closing Date and ending on the day prior to the first anniversary of the Closing Date (such period, “Year 1”), the Purchaser will make an Earn-Out Payment of $4,000,000. For EBITDA of less than $[*] but more than $[*] for Year 1, the amount of the Earn-Out Payment will be calculated pro rata on the amount by which the Company’s EBITDA is between $[*] and $[*]. No Earn-Out Payment is payable for Year 1 if the Company’s EBITDA is less than $[*]. The Earn-Out Payment is to be paid in cash to the Seller Representative for distribution to the Sellers under Sections 2.2(b) and (c) within eighty-five (85) days after the first anniversary of the Closing Date, or ten (10) days after the resolution of an Earn-Out Disagreement. If the maximum Earn-Out Payment of $4,000,000 is not fully achieved in Year 1, the balance not earned shall be carried over into Year 2 as an addition to the maximum $4,000,000 Earn-Out Payment potentially earned in that period. Additionally, if the Company’s EBITDA for Year 1 exceeds or falls short of the Year 1 EBITDA Target, the excess shall be carried over into Year 2 as a credit or the shortfall shall be carried into Year 2 as a debit, to the Company’s EBITDA for Year 2.
Year 1 Example #2: if the Company’s EBITDA for Year 1 is $[*xxxx], the Earn-Out Payment would Consideration shall be [*]% zero. For the avoidance of doubt, the extent and nature of business conducted by the Buyer and the Company after the Closing shall be determined by the Company and Buyer, in their discretion. Notwithstanding the aforesaid, in the event of a Change of Control (as such term is defined below) of the $4,000,000 total available for that periodBuyer, and $[*] occurring after the date of the Company’s EBITDA for that period (Closing, prior to January 31, 2009, [*Confidential Treatment Requested—] – then the revenue recognized from sales of [*]) would be carried over into Year 2 and credited towards the Company’s EBITDA for Year 2.
(c) If the Company generates EBITDA of or exceeding $[*xxxx] (the “Year 2 EBITDA Target”) during the period beginning on the first anniversary of the Closing Date and ending on the day prior to the second anniversary of the Closing Date (such period, “Year 2”), the Purchaser will make an Earn-Out Payment of $4,000,000 plus any carry over from Year 1 as described in (b) above. For EBITDA of less than $[*] but Period shall conclusively be deemed to be, for all purposes and intents hereunder, more than $[*] for Year 2xxxx], and therefore the Earn-Out Payment will be calculated pro rata on the amount by which the Company’s EBITDA is between $[*] and $[*]. No Earn-Out Payment is payable for Year 2 if the Company’s EBITDA is less than $[*]. The Earn-Out Payment is to be paid in cash to the Seller Representative for distribution to the Sellers under Section 2.2(b) within eighty-five (85) days after the second anniversary of the Closing Date, or ten (10) days after the resolution of an Earn-Out Disagreement. If the maximum Earn-Out Payment is not fully achieved in Year 2 (which maximum Consideration shall be $4,000,000 plus any portion of the Earn-Out not fully achieved in Year 1 that has been carried over into Year 2), the balance [xxxx] and shall be carried over into Year 3. Additionally, if distributed as required hereunder on the Company’s EBITDA date such Change of Control is consummated less any claims outstanding as of such date for Year 2 exceeds or falls short of the Year 2 EBITDA Target, the excess shall Damages to be carried over into Year 3 as a credit or the shortfall shall be carried into Year 3 as a debit, to the Company’s EBITDA for Year 3resolved in accordance indemnification procedures set forth in Article XII.
Appears in 1 contract
Sources: Merger Agreement (Optium Corp)
Earn-Out Consideration. In addition (a) The Stockholders shall be entitled to receive up to an aggregate of two million eight hundred forty thousand (2,840,000) shares of Parent Common Stock (the "Earn-Out Consideration") from the Escrow Account pursuant to the Initial Purchase PriceEscrow Agreement, allocated among the Stockholders as set forth on Annex I attached hereto, upon the Surviving Corporation having the earnings before interest and taxes ("EBIT") for one or more of the applicable periods set forth on Annex II attached hereto. To the extent that the Surviving Corporation's capital expenditures in any of the First, Second or Third Earn-Out Periods exceeds or are less than the amounts for such period set forth on Annex IV hereto, then in each case Parent and the Stockholders' Representative will negotiate in good faith to properly and reasonably adjust up or down, as applicable, the Sellers may receive additional consideration applicable Earn-Out Threshold. If Parent and the Stockholders' Representative are unable to agree on such an adjustment to the applicable Earn-Out Threshold, such matter shall be submitted to the Independent Accounting Firm in accordance with the arbitration procedures set forth in Section 2.5(d) below.
(b) The Earn-Out Consideration for any period shall be payable as follows:
(i) As soon as possible after the earlier of up to $12,000,000 (A) the eleventh day after the delivery of the Statement of EBIT (as defined below) in connection with the period beginning on the date hereof and ending December 31, 2000 (the “Maximum Earnout”) payable in cash, over a three-year earn-out period (the “"First Earn-Out Period”") following if the Closing Date. The earnStockholders' Representative (as defined herein) shall not have timely delivered to Parent a valid Stockholders Objection Notice (as defined below) with respect to such period or (B) the date the Independent Accounting Firm (as defined below) determines the EBIT for such period if the Stockholders' Representative shall have timely delivered a valid Stockholders Objection Notice for such period, the Stockholders' Representative and Parent shall jointly notify and instruct the Escrow Agent, which notification shall be made as soon as possible after the occurrence of the earlier to occur of the events described in subclause A or B, if the EBIT for the First Earn-out, described below and credit as adjustment to earn-out agreement Out Period (x) as set forth in Exhibit “A”the Statement of EBIT (if the Stockholders' Representative has not timely delivered a valid Stockholders Objection Notice) or (y) as determined by the Independent Accounting Firm (if the Stockholders' Representative has timely delivered a valid Stockholders Objection Notice), will be paid in accordance with as applicable, is sixty percent (60%) or more of the following terms (it is being understood that the aggregate of all First Earn-Out payments paid Threshold Amount (as set forth on Annex II attached hereto), to Sellers pursuant release, and each shall use their respective reasonable best efforts to this Agreement shall not exceed cause the Maximum Earnout under any circumstances):Escrow Agent to immediately so release, to the Stockholders the number of shares of Parent Common Stock indicated on Annex II attached hereto.
(aii) With respect to As soon as possible after the period earlier of (A) the eleventh day after the delivery of the first thirtyStatement of EBIT in connection with the six-six months of operations as a unit of the Purchaser month period ended June 30, 2001 (the “"Second Earn-Out Period”)") if the Stockholders' Representative shall not have timely delivered to Parent a valid Stockholders Objection Notice with respect to such period or (B) the date the Independent Accounting Firm determines the EBIT for such period if the Stockholders' Representative shall have timely delivered to the Parent a valid Stockholders Objection Notice with respect to such period, the Purchaser will make an earn-out payment (Stockholders' Representative and Parent shall jointly notify and instruct the “Escrow Agent, which notification shall be made as soon as possible after the occurrence of the earlier to occur of the events described in subclause A or B, if EBIT for the Second Earn-Out Payment”Period (x) based upon as set forth in the Company’s earnings before interestStatement of EBIT (if the Stockholders' Representative has not timely delivered a valid Stockholders Objection Notice) or (y) as determined by the Independent Accounting Firm (if Stockholders' Representative has timely delivered a valid Stockholders Objection Notice), taxesas applicable, depreciation is sixty percent (60%) or more of the Second Earn-Out Threshold Amount (as set forth on Annex II attached hereto), to release, and amortization each shall use their respective reasonable best efforts to cause the Escrow Agent to immediately so release, to the Stockholders the number of shares of Parent Common Stock indicated on Annex II attached hereto.
(“EBITDA”iii) during As soon as possible after the earlier of (A) the eleventh day after the delivery of the Statement of EBIT in connection with the six-month period ended December 31, 2001 (the "Third Earn-Out Period") if the Stockholders' Representative shall not have timely delivered to the Parent a valid Stockholders Objection Notice with respect to such period or (B) the date of the Independent Accounting Firm determines the EBIT for such period if the Stockholders' Representative shall have timely delivered to Parent a valid Stockholders Objection Notice with respect to such period, the Stockholders' Representative and Parent shall jointly notify and instruct the Escrow Agent, which notification shall be made as soon as possible after the occurrence of the earlier to occur of the events described in subclause A or B, if EBIT for the Third Earn-Out Period (x) as set forth in the Statement of EBIT (if the Stockholders' Representative has not timely delivered a valid Stockholders Objection Notice) or (y) as determined by the Independent Accounting Firm (if the Stockholders' Representative has timely delivered a valid Stockholders Objection Notice), as applicable, is sixty percent (60%) or more of the Third Earn-Out Threshold Amount (as set forth on Annex II attached hereto) (collectively with the First Earn-Out Threshold and the Second Earn-Out Threshold, the "Earn-Out Threshold"), to release, and each year shall use their respective reasonable best efforts to cause the Escrow Agent to immediately so release, to the Stockholders the number of shares of Parent Common Stock indicated on Annex II attached hereto.
(iv) In no event shall Stockholders receive shares of Parent Common Stock pursuant to Section 2.5(b) hereof in excess of the aggregate Earn-Out Consideration.
(v) Parent and the Stockholders' Representative shall jointly notify and instruct the Escrow Agent to release to Parent any shares of Parent Common Stock with respect to the Earn-Out Period. For purposes Consideration not paid or payable to the Stockholders after the final determination of determining EBIT for the earn-out, EBITDA is defined as earnings from operations last of the Company determined in accordance with GAAP. The Purchaser’s corporate-allocated overhead (excluding any charges borne by the Purchaser solely for the benefit of the Company that otherwise would have been incurred directly by the Company in the normal course of business regardless of the Transaction1) shall not be included. Prior to each year of the First Earn-Out Period, Purchaser Second Earn-Out Period and Seller Representative shall mutually agree on an estimated budget of charges that Purchaser reasonably anticipates incurring solely for the benefit of the Company under the parenthetical in the immediately preceding sentence. Purchaser shall also provide Seller Representative, on a monthly basis during the Third Earn-Out Period, a statement showing in reasonable detail all such charges actually incurred by Purchaser for the prior month. To the extent such charges exceed the amounts the Company would reasonably have been expected to incur had charges been borne by the Company directly and not by Purchaser, and are not offset by cost reductions provided from other expense line items supplied by or procured by Purchaser, the Company will receive a credit towards EBITDA in an amount equal to the excess. To the extent that such Purchaser supplied cost reductions exceed any increases in costs, the Company will receive a debit against its EBITDA in an amount equal to the excess. If the Closing Date occurs on a date that is not the end of one of Purchaser’s fiscal months, the Earn-Out Period will begin with the first full fiscal month of Purchaser’s ownership.
(bvi) If Each of Parent and the Company generates EBITDA of or exceeding $[*] (the “Year 1 EBITDA Target”) during the period beginning on the Closing Date Stockholders acknowledges and ending on the day prior agrees that its respective failure to timely deliver any applicable notification to the first anniversary Escrow Agent pursuant to this Section 2.5(b) shall be deemed a material breach of this Agreement by Parent or the Closing Date (such periodStockholders, “Year 1”), the Purchaser will make an Earn-Out Payment of $4,000,000. For EBITDA of less than $[*] but more than $[*] for Year 1, the amount of the Earn-Out Payment will be calculated pro rata on the amount by which the Company’s EBITDA is between $[*] and $[*]. No Earn-Out Payment is payable for Year 1 if the Company’s EBITDA is less than $[*]. The Earn-Out Payment is to be paid in cash to the Seller Representative for distribution to the Sellers under Sections 2.2(b) and as applicable.
(c) within eighty-five EBIT shall be computed in accordance with generally accepted accounting principles (85"GAAP") days after consistently applied consistent with Target's past practices as modified by Annex III attached hereto.
(d) As promptly as practicable following the first anniversary determination by Parent of EBIT for the applicable period, Parent shall provide to the Stockholders' Representative a statement setting forth the calculation of EBIT for the relevant period (the "Statement of EBIT"). Following the delivery of the Closing Dateapplicable Statement of EBIT, or the Stockholders' Representative will be afforded a period of ten (10) days to review the applicable Statement of EBIT. At or before 5:00 p.m. California time on the tenth day after delivery of the resolution Statement of an Earn-Out Disagreement. If EBIT, Stockholders' Representative will either (a) accept the maximum Earn-Out Payment EBIT amounts contained in the Statement of $4,000,000 is not fully achieved EBIT in Year 1its entirety, in which case the balance not earned EBIT for such period shall be carried over into Year 2 as an addition to the maximum $4,000,000 Earn-Out Payment potentially earned in that period. Additionally, if the Company’s EBITDA for Year 1 exceeds set forth therein or falls short of the Year 1 EBITDA Target, the excess shall be carried over into Year 2 as a credit or the shortfall shall be carried into Year 2 as a debit, to the Company’s EBITDA for Year 2.
Year 1 Example #2: if the Company’s EBITDA for Year 1 is $[*], the Earn-Out Payment would be [*]% of the $4,000,000 total available for that period, and $[*] of the Company’s EBITDA for that period ([*] – [*]) would be carried over into Year 2 and credited towards the Company’s EBITDA for Year 2.
(c) If the Company generates EBITDA of or exceeding $[*] (the “Year 2 EBITDA Target”) during the period beginning on the first anniversary of the Closing Date and ending on the day prior to the second anniversary of the Closing Date (such period, “Year 2”), the Purchaser will make an Earn-Out Payment of $4,000,000 plus any carry over from Year 1 as described in (b) above. For EBITDA deliver to Parent a written notice ("Stockholders Objection Notice") containing a sufficiently detailed written explanation of less than $[*] but more than $[*] for Year 2, those items in the Earn-Out Payment will be calculated pro rata on the amount by Statement of EBIT which the Company’s EBITDA is between $[*] Stockholders' Representative disputes and $[*]. No Earn-Out Payment is payable for Year 2 if the Company’s EBITDA is less than $[*]Stockholders' Representative's calculation of such items. The Earn-Out Payment is failure of the Stockholders' Representative to be paid timely deliver the valid Stockholders Objection Notice shall constitute the Stockholders' Representative's acceptance of the EBIT amounts contained in cash the applicable Statement of EBIT in its entirety. If Parent and the Stockholders' Representative cannot resolve, using their respective commercially reasonable efforts, any dispute with respect to the Seller Representative for distribution to the Sellers under Section 2.2(b) determination of such EBIT within eighty-five (85) days after the second anniversary of the Closing Date, or ten (10) business days after the resolution of an Earn-Out Disagreement. If Stockholders' Representative delivers the maximum Earn-Out Payment is not fully achieved in Year 2 (which maximum applicable Stockholders Objection Notice to Parent, then such dispute shall be $4,000,000 plus any portion resolved by binding arbitration under the then prevailing version of the Earn-Out not fully achieved in Year 1 that has been carried over into Year 2), Commercial Rules of the balance American Arbitration Association as modified by this Section 2.5. Such arbitration shall be carried over into Year 3. Additionallyconducted in Los Angeles by an independent nationally recognized accounting firm which is reasonably acceptable to Parent and the Stockholders' Representative which firm has not previously been employed by Target, if the Company’s EBITDA for Year 2 exceeds Parent or falls short any Affiliate of either of the Year 2 EBITDA Target, foregoing (the excess "Independent Accounting Firm"). Each party shall be carried over into Year 3 as a credit or entitled to undertake limited discovery before the shortfall arbitration. That discovery shall be carried into Year 3 as a debit, consist of (a) narrowly drawn document requests directed only to the Company’s EBITDA for Year 3.appropriate calculation of the EBIT, (b) two (2) depositions per party of percipient witnesses, and (c) one (1) deposition per party of expert
Appears in 1 contract
Sources: Merger Agreement (24/7 Media Inc)