Earnout Payments (a) The Seller shall be entitled to, and shall, earn each of the Year-One Earnout Consideration and the Year-Two Earnout Consideration as and to the extent provided in this Section 2.5.
(b) Within sixty (60) days after the expiry of each Earnout Period, the Buyer shall provide the Seller with written notice (the “Earnout Notice”) of the Buyer’s reasonably detailed computation of the EBITDA during such Earnout Period (the “Earnout EBITDA”), the Earnout Consideration calculated therefrom. If the Buyer shall fail to timely provide an Earnout Notice, then the Earnout EBITDA shall be finally and conclusively deemed to equal 100% of the Earnout Target for such Earnout Period.
(c) Upon the receipt by the Seller of an Earnout Notice, the Seller shall have a period of thirty (30) days to review the Earnout Notice and may have the same verified by independent accountants and other Representatives selected by him. The Seller and his Representatives shall be entitled to perform all reasonable procedures (including review of all records of the Buyer and the Company supporting such calculations and other materials as they may reasonably request) and to take any other reasonable steps that the Seller and his Representatives deem appropriate to confirm that the amount of the Earnout EBITDA for the applicable Earnout Period set forth in the Earnout Notice has been prepared in accordance with the terms of this Agreement. If the Seller shall have any objections to the calculation of the Earnout EBITDA set forth in the Earnout Notice, the Seller shall deliver to the Buyer, within thirty (30) days from his receipt of the Earnout Notice (the “Earnout Objection Period”), a written statement (the “Earnout Objection Notice”) setting forth the component or components of the Earnout Notice that are in dispute, the basis of such dispute and, if known, the amount proposed as an adjustment. The failure of the Seller to deliver an Earnout Objection Notice within the thirty (30) day period hereinabove provided shall constitute the acceptance by the Seller of the Earnout EBITDA and the amount of Earnout Consideration set forth in the Earnout Notice whereupon such amounts shall be final, binding and conclusive for all purposes hereunder. Notwithstanding anything to the contrary contained in this Section 2.5, in the event any information reasonably requested by the Seller under this Section 2.5(c) has not been provided to the Seller promptly following the Seller’s request thereof and within such thirty (30) day period, then the Earnout EBITDA and the amount of Earnout Consideration, each as set forth in the Earnout Notice shall not be deemed final, binding or conclusive hereunder, and the Seller may unilaterally (without the Buyer’s consent) extend the period for which the Seller may submit the Earnout Objection Notice five (5) days for each day beyond the thirty (30) day period that such item remains outstanding by delivering a written notice to the Buyer of such extension.
(d) If the Seller delivers an Earnout Objection Notice, the Seller and the Buyer shall in good faith attempt to resolve any such dispute and, if the parties so resolve all such disputes, then the computation of the Earnout EBITDA and the amount of Earnout Consideration set forth in the Earnout Notice for the applicable Earnout Period as resolved by the parties, shall be conclusive and binding on the parties upon written acknowledgement of such resolution. If the Seller and the Buyer fail to resolve all of the items in dispute within thirty (30) days after the Seller’s delivery of the Earnout Objection Notice to the Buyer (or such longer period as they may mutually agree in writing), then either party may elect to submit any remaining disputed items to an independent third-party arbitrator mutually acceptable to the Buyer and the Seller who shall be qualified by experience and training to arbitrate commercial disputes (the “Earnout Expert”) who shall be retained to review promptly the Earnout EBITDA and the amount of Earnout Consideration set forth in the Earnout Notice and the disputed items or amounts; provided, however, that if the Buyer and the Seller are unable to mutually agree on an individual to act as the Earnout Expert within five (5) Business Days after the Buyer or the Seller elect to submit the dispute to arbitration, then each of the Buyer and the Seller shall each designate an independent third-party arbitrator and such designees shall promptly (and in any event within ten (10) days) select an individual to act as the Earnout Expert.
(e) If any disputed items are referred to the Earnout Expert, the parties shall cooperate in good faith with the determination process and the Earnout Expert’s requests for information, including providing the Earnout Expert with information as promptly as practicable after its request therefor. Each party shall be entitled to receive copies of all materials provided by the other to the Earnout Expert in connection with the determination process. In making its determination on the disputed items, the Earnout Expert shall make such determinations (i) only in accordance with the standards set forth in this Agreement, (ii) only with respect to the disputed items submitted to the Earnout Expert and no other items, (iii) on a disputed item by disputed item basis (i.e., not in the aggregate), and (iv) where the result of the Earnout Expert’s determination for such disputed item is neither greater then nor less than the amounts presented by the parties to the Earnout Expert with respect to the item in dispute. In connection with his review the Earnout Expert shall have the right to engage an independent accounting firm; provided such independent accounting firm does not have, and has not had, a material relationship with the Seller, the Buyer or any of their respective Affiliates in the past five (5) years. The determination of the Earnout Expert shall be final, conclusive and binding on the parties, absent manifest error. The parties shall instruct the Earnout Expert to provide its determination in writing to the parties within thirty (30) days of the date it is engaged on such project. Neither party shall have any ex parte conversations or meetings with the Earnout Expert without the prior written consent of the other party.
(f) The amount of Earnout EBITDA for the applicable Earnout Period and the amount of Earnout Consideration calculated therefrom either as accepted or deemed to have been accepted by the Seller or as adjusted and resolved in the manner herein provided, shall fix the amount of the Earnout EBITDA for the applicable Earnout Period and the amount of Earnout Consideration calculated therefrom. Subject to the reimbursement provided in the next sentence, each party shall bear its own expenses and the fees and expenses of its own Representatives, including its independent accountants, in connection with the preparation, review, dispute (if any) and final determination of the amount of Earnout EBITDA for the applicable Earnout Period and the Earnout Consideration calculated therefrom. The fees and expenses of the Earnout Expert shall be borne by the party (either the Buyer or the Seller) whose determination of the amount of Earnout EBITDA (as set forth in the Earnout Notice or Earnout Objection Notice, as applicable) was farthest from the final determination by the Earnout Expert, and such party shall reimburse the other party for all out-of-pocket fees and expenses (including attorneys’ and accountants’ fees) incurred in connection therewith; provided, that, if the determination by the Earnout Expert is equidistant between the determinations of the parties, or is no more than five percent (5%) more or less than such equidistant amount, the fees of the Earnout Expert shall be borne equally by the Buyer and the Seller and each of the Buyer and the Seller shall bear the cost of their own respective fees and expenses.
(g) If the Earnout EBITDA set forth in the Earnout Notice for the First Earnout Period is equal to or greater than one hundred percent (100%) of the Year-One EBITDA Target then the Seller shall be entitled to receive one hundred percent (100%) of the Year-One Earnout Consideration.
(h) If the Earnout EBITDA as set forth in the Earnout Notice for the First Earnout Period is equal to or greater than seventy percent (70%) and less than one hundred percent (100%) of the Year-One EBITDA Target, then the Seller shall be entitled to receive a portion of the Year-One Earnout Consideration equal to the product of (A) the Year-One Earnout Consideration multiplied by (B) a fraction, the numerator of which is the Earnout EBITDA for the First Earnout Period, and the denominator of which is the Year-One EBITDA Target. If the Earnout EBITDA for the First Earnout Period is less than seventy percent (70%) of the Year-One EBITDA Target, then the Seller shall not be entitled to any portion of the Year-One Earnout Consideration.
(i) If the Earnout EBITDA set forth in the Earnout Notice for the Second Earnout Period is equal to or greater than one hundred percent (100%) of the Year-Two EBITDA Target then the Seller shall be entitled to receive an amount equal to the Year-Two Earnout Consideration.
(j) If the Earnout EBITDA as set forth in the Earnout Notice for the Second Earnout Period is equal to or greater than seventy percent (70%) and less than one hundred percent (100%) of the Year-Two EBITDA Target, then the Seller shall be entitled to receive a portion of the Year-Two Earnout Amount equal to the product of (A) the Year-Two Earnout Amount multiplied by (B) a fraction, the numerator of which is the Earnout EBITDA for the Second Earnout Period, and the denominator of which is the Year-Two EBITDA Target. If the Earnout EBITDA for the Second Earnout Period is less than seventy percent (70%) of the Year-Two EBITDA Target, then the Seller shall not be entitled to any portion of the Year-Two Earnout Consideration.
(k) Except as set forth in Section 2.5(l), the Earnout Consideration shall be paid by wire transfer of immediately available funds; provided, however, to the extent there shall not be an Equity Conditions Failure, at the Buyer’s discretion, up to sixty percent (60%) of the Earnout Consideration for any Earnout Period may be satisfied with shares of the Buyer Common Stock valued at a price per share equal to the Earnout Share Price.
(l) If no Earnout Objection Notice is received, within three (3) Business Days of the expiration of the Earnout Objection Period, the Buyer shall either (i) pay to the Seller in immediately available funds the applicable percentage of the Earnout Consideration, or (ii) to the extent there shall not be an Equity Conditions Failure, (x) pay in immediately available funds and (y) issue such number of shares of Buyer Common Stock, which together shall equal in value the applicable percentage of the Earnout Consideration to the Seller; provided, that at least forty percent (40%) of such Earnout Consideration shall be paid in immediately available funds. If an Earnout Objection Notice is received, within five (5) Business Days of the Earnout EBITDA determination becoming final, conclusive and binding upon the parties in accordance with the terms set forth above, the Buyer shall (i) pay to the Seller in immediately available funds the applicable percentage of the Earnout Consideration or (ii) to the extent the Equity Conditions are then satisfied, (x) pay in immediately available funds and (y) issue such number of shares of Buyer Common Stock, which together shall equal in value the applicable percentage of the Earnout Consideration to the Seller; provided, that at least forty percent (40%) of such Earnout Consideration shall be paid in immediately available funds.
(m) Notwithstanding anything contained in this Section 2.5 to the contrary, if (i) the Seller timely delivers an Earnout Objection Notice to the Buyer and (ii) the Buyer’s computation of EBITDA for such Earnout Period is in an amount sufficient for a portion of the Earnout Consideration to be paid (or if applicable, issued) for such Earnout Period, then, within three (3) Business Days of the receipt of the Earnout Objection, the Buyer shall (i) pay to the Seller in immediately available funds the applicable percentage of the Earnout Consideration or (ii) to the extent there shall be no Equity Conditions Failure, (x) pay in immediately available funds and (y) issue such number of shares of Buyer Common Stock, which together shall equal in value the applicable percentage of the Earnout Consideration to the Seller (any such amount so paid or issued, an “Interim Earnout Payment Amount”). Upon final determination of the appropriate amount of the Earnout Consideration for such Earnout Period in accordance with this Section 2.5, the Buyer shall promptly pay and/or issue to Seller the amount of such Earnout Consideration less the Interim Earn-out Payment Amount previously paid and/or issued; provided, that at least forty percent (40%) of the aggregate amount of such Earnout Consideration shall be paid in immediately available funds.
(n) Any payments under this Section 2.5 shall constitute an adjustment to the Purchase Price.
(o) From and after the Closing Date until the expiration of the Second Earnout Period, the Buyer shall, and the Buyer shall cause the Company to, own and operate the Company as a separate business and maintain separate financial statements for the Company, to include all business that is originated or generated by the Company, including, without limitation, all revenue generated by employees compensated by the Company (including those individuals set forth on Schedule 2.3(a)) with or by the use of the Buyer’s products or platforms including SRAX, SRAX MD, SRAX DI, GroupAD, Social Spotlight Media, Facebook ads and advertisements on other social media platforms, as well as any future products, platforms or other sales channels or methodologies developed by the Buyer, which shall be counted toward the determination of the Company’s EBITDA; provided, however, that (i) the related employee compensation costs, (ii) the actual cost of utilizing any such product, platform, sales channel or other methodology which is directly attributable to the revenue generated by such employees which are compensated by the Company (but not the cost of any development or creation of such products, platform, sales channels or other methodologies) and (iii) any project or campaign specific development costs or creative services costs requested by the Seller, in each case shall be counted toward the determination of the Company’s EBITDA and shall not be an EBITDA Adjustment. The Buyer shall act in good faith in the exercise of its power, authority and control of the Company and shall cause the Company to operate the Business in a manner generally consistent with the Company’s operation of the Business in the fiscal year prior to the Closing and in a manner intended to maximize EBITDA during each Earnout Period. In furtherance of the foregoing covenants in this Section 2.5(o), from the Closing Date until the expiration of the Second Earnout Period, the Buyer shall not, and the Buyer shall cause the Company not to, without the prior written consent of the Seller: (i) increase the compensation of any employees, consultants, contractors or other persons providing services to the Business or the Company, which such increase, in the aggregate, would be material to the Company or the Business; (ii) engage in any transaction or incur any expense or obligation to an Affiliate unless such expense or obligation is on terms and conditions which are no more favorable to such Affiliate than the Buyer or the Company would obtain in an arms’ length arrangement negotiated with a third party; (iii) increase any reserve or take any charge against earnings except to the extent required by applicable Law or GAAP and, in which case, any such increase or reserve shall be disregarded for purposes of calculating the Company’s EBITDA; (iv) incur any expense inconsistent with the type, amount or timing of expenses incurred by the Company in the conduct of the Business during the fiscal year prior to the Closing, unless the Buyer or the Company reasonably determines such expense is reasonably necessary to generate or protect revenues during s
Net Payments (a) All payments made by the Borrower hereunder and under any Note will be made without setoff, counterclaim or other defense. Except as provided in Section 5.04(b), all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political sub-division or taxing authority thereof or therein with respect to such payments (but excluding, except as provided in the second succeeding sentence, any tax imposed on or measured by the net income or net profits of a Lender pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Lender is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect to such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as “Taxes”). If any Taxes are so levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. If any amounts are payable in respect of Taxes pursuant to the preceding sentence, the Borrower agrees to reimburse each Lender, upon the written request of such Lender, for taxes imposed on or measured by the net income or net profits of such Lender pursuant to the laws of the jurisdiction in which such Lender is organized or in which the principal office or applicable lending office of such Lender is located or under the laws of any political subdivision or taxing authority of any such jurisdiction in which such Lender is organized or in which the principal office or applicable lending office of such Lender is located and for any withholding of taxes as such Lender shall determine are payable by, or withheld from, such Lender, in respect of such amounts so paid to or on behalf of such Lender pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Lender pursuant to this sentence. The Borrower will furnish to the Administrative Agent within 45 days after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by the Borrower. The Borrower agrees to indemnify and hold harmless each Lender, and reimburse such Lender upon its written request, for the amount of any Taxes so levied or imposed and paid by such Lender.
(b) Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes agrees to deliver to the Borrower and the Administrative Agent on or prior to the Effective Date or, in the case of a Lender that is an assignee or transferee of an interest under this Agreement pursuant to Section 2.13 or 13.04(b) (unless the respective Lender was already a Lender hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Lender, (i) two accurate and complete original signed copies of Internal Revenue Service Form W-8ECI or Form W-8BEN (with respect to a complete exemption under an income tax treaty) (or successor forms) certifying to such Lender’s entitlement as of such date to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Note, or (ii) if the Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form W-8ECI or Form W-8BEN (with respect to a complete exemption under an income tax treaty) (or any successor forms) pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit D (any such certificate, a “Section 5.04(b)(ii) Certificate”) and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8BEN (with respect to the portfolio interest exemption) (or successor form) certifying to such Lender’s entitlement as of such date to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note. In addition, each Lender agrees that from time to time after the Effective Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, such Lender will deliver to the Borrower and the Administrative Agent two new accurate and complete original signed copies of Internal Revenue Service Form W-8ECI, Form W-8BEN (with respect to the benefits of any income tax treaty), or Form W-8BEN (with respect to the portfolio interest exemption) and a Section 5.04(b)(ii) Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any Note, or such Lender shall immediately notify the Borrower and the Administrative Agent of its inability to deliver any such Form or Certificate, in which case such Lender shall not be required to deliver any such Form or Certificate pursuant to this Section 5.04(b). Notwithstanding anything to the contrary contained in Section 5.04(a), but subject to Section 13.04(b) and the immediately succeeding sentence, (x) the Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, Fees or other amounts payable hereunder for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that such Lender has not provided to the Borrower U.S. Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Borrower shall not be obligated pursuant to Section 5.04(a) to gross-up payments to be made to a Lender in respect of income or similar taxes imposed by the United States if (I) such Lender has not provided to the Borrower the Internal Revenue Service Forms required to be provided to the Borrower pursuant to this Section 5.04(b) or (II) in the case of a payment, other than interest, to a Lender described in clause (ii) above, to the extent that such forms do not establish a complete exemption from withholding of such taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 5.04 and except as set forth in Section 13.04(b), the Borrower agrees to pay any additional amounts and to indemnify each Lender in the manner set forth in Section 5.04(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any amounts deducted or withheld by it as described in the immediately preceding sentence as a result of any changes that are effective after the Effective Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of such Taxes.
Earn-Out Payments (i) Pursuant to the Purchase Agreement, the WME Member or the Company, as applicable, are the obligors in respect of a portion of the Earn-Out Payment. Subject to Section 7.03(g)(ii), the Earn-Out Payments may be funded in any of the following manners (or any combination thereof) as determined by unanimous Board approval (provided that if unanimous Board approval is not obtained, the WME Member or the Company, as applicable, shall nevertheless be permitted to comply with their respective obligations to the Earn-Out Recipients under the Purchase Agreement): (A) for so long as the January Capital Member is a Member, a special cash distribution by the Company to the January Capital Member in consideration of that portion of the Earn-Out Payment due to the January Capital Member, (B) a cash distribution to all Common Members on a pro rata basis to enable the Common Members (other than the Class B Members) to make Earn-Out Payments to the Earn-Out Recipients (provided that all such Common Members shall be required to make such Earn-Out Payment following receipt of such distribution), (C) a special cash distribution by the Company to the WME Member to fund Earn-Out Payments by the WME Member to the Earn-Out Recipients (provided that the WME Member shall be required to make such Earn-Out Payment following receipt of such distribution), and (D) funding by the WME Member (and to the extent agreed to by the Sponsor Members, the Sponsor Members) for Earn-Out Payments to the Earn-Out Recipients.
(ii) The Earn-Out Payments shall be subject to the following rules: (A) Earn-Out Payments to the January Capital Member will, to the extent permitted under the terms of any indebtedness and Senior Equity of the Company and its Subsidiaries and Annex A, and to the extent the WME Directors reasonably determine (after meaningful consultation with the full Board) that doing so would not have an adverse impact on the Company or its Subsidiaries, for so long as the January Capital Member is a Member, be distributed by the Company to the January Capital Member (subject, in each case, to clause (B) below) (provided that, for purposes of clarification, the January Capital Member shall not lose or waive its right to receive unpaid Earn-Out Payments solely because it ceases to be a Member; provided further that, if the Company is prohibited under the terms of any indebtedness or Senior Equity of the Company or its Subsidiaries or Annex A, or the Board otherwise determines that doing so would have an adverse impact on the Company or its Subsidiaries, and accordingly does not distribute Earn-Out Payments to the January Capital Member in accordance with this clause (A), then the January Capital Member shall have the right, but not the obligation, to elect in writing to defer the payment of such Earn-Out Payment for a period of up to 24 months (the “Outside Earn-Out Payment Date”); provided further that the deferred Earn-Out Payment will be made to the January Capital Member on the earliest to occur of (A) the date on which the deferred Earn-Out Payment may be made by the Company in accordance with, and subject to the terms and conditions of, this clause (A), (2) the date specified in writing by the January Capital Member (provided the January Capital Member provides written notice to the WME Member at least 60 days prior to the date on which the January Capital Member would like to receive the deferred Earn-Out Payment if such date is prior to the Outside Earn-Out Payment Date) and (3) the Outside Earn-Out Payment Date, (B) the Class B Members shall be grossed up so that they do not bear the effect of any Dilutive Adjustment (as defined below) or the Economic Cost of any Earn-Out Payments that are funded by distributions by the Company, (C) the Class B Members shall not bear any dilution arising from (x) the issuance of any Units that are issued in connection with the Earn-Out Payments or (y) any adjustment to the exercise price (a “Dilutive Adjustment”) of any securities or other interests convertible into Equity Securities of the Company resulting from any gross-up or true-up payment made in connection with, or that constitutes, any Earn-Out Payment, and (D) if any portion of the Earn-Out Payments are paid pursuant to clause (D) of Section 7.03(g)(i) by the WME Member and, if applicable, any Sponsor Members, the WME Member and such Sponsor Members (if any), will be issued Class A Common Units in respect of the amounts so paid thereby pursuant to such clause (D) at a price to be unanimously determined by the Board, which shall in no event be greater than Fair Market Value; provided, that if the Board does not unanimously agree on the price per Class A Common Unit, such Class A Common Units will be issued at Fair Market Value, as unanimously determined by the Board; provided, further, that if the Board does not unanimously agree on Fair Market Value, such value shall be determined by an investment banking firm of national reputation selected by the WME Member and reasonably acceptable to the SL Member, the KKR Member and the Company, whose expenses shall be borne by the Company.
(iii) Solely for purposes of this Section 7.03(g), “Economic Cost”, means, with respect to a Class B Member, such Member’s direct or indirect Percentage Interest of any Company cash or other Company asset that is distributed in a non-pro rata distribution to fund all or any portion of any Earn-Out Payment; provided, that, “Economic Cost” shall not include any diminution in value, lost profits or similar cost not relating to the immediate economic effect of the applicable non-pro-rata distribution.
FILOT PAYMENTS Section 4.01
Earnout Payment (i) As promptly as practicable after the end of the Earnout Period, but in no event later than 60 days following December 31, 2005, Parent shall provide the Stockholders’ Agent with a report, setting forth the Net Revenues for the 12-month period ended December 31, 2005 (the “Earnout Report”). If an Earnout Dispute Notice is not delivered pursuant to Section 2.4(c)(iii) below, then in no event later than 105 days following December 31, 2005, Parent shall pay or cause to be paid the Earnout Payment Amount in accordance with the terms of this Agreement, subject to the right of offset provisions of Sections 2.4(a), (b) and (d).
(ii) Parent shall keep full, clear and accurate books and records with respect to the Business. The books and records shall be maintained in such a manner that Net Revenue shall be readily verifiable. All books and records with respect to the Business shall be available for inspection by the Stockholders’ Agent or any attorney or accountant engaged by the Stockholders’ Agent to act on behalf of the Holders, in all cases upon reasonable prior notice and during normal business hours. The information contained in the books and records of Parent with respect to the Business shall remain confidential. Notwithstanding the foregoing, upon written request of the Stockholders’ Agent, Parent shall provide the Stockholders’ Agent with a report reflecting the estimate of the Net Revenue to date (which estimate is subject to change in the preparation of the Earnout Report) as promptly as practicable thereafter; provided that the Stockholders’ Agent may only make such a request once every six months commencing on July 1, 2005. If the Stockholders’ Agent does not deliver to Parent an Earnout Dispute Notice (as defined below) as set forth in Section 2.4(c)(iii) below, then the Earnout Report for the Earnout Period shall be deemed final and binding and neither the Stockholders’ Agent nor the Holders shall have any further right to contest the report, the computation of Net Revenue or payment of the Earnout Payment Amount.
(iii) In the event that the Stockholders’ Agent shall dispute the information set forth by Parent in the Earnout Report or, if based on the Stockholders’ Agent’s review of the books and records of the Business in accordance with subsection (c)(ii) above, omitted from the Earnout Report, as the case may be, then, within 60 calendar days following the date of the delivery by Parent of such report, the Stockholders’ Agent shall provide written notice to Parent (the “Earnout Dispute Notice”) specifying the amount disputed and the basis for the dispute, together with supporting documentation reflecting the analysis of and justification for any recomputation made. Parent and the Stockholders’ Agent shall make good faith efforts to resolve the dispute through negotiations for a period of 30 calendar days following the receipt of the written notice defining and describing the nature of the dispute. In the event that the parties are unable to finally resolve the dispute within such 30 calendar-day period, the parties to the dispute may elect by mutual agreement to extend the period of negotiation and may elect by mutual agreement to engage a mediator to assist in such negotiation. To the extent that any matter remains unresolved following negotiations (as determined by notice by any party to the other parties), the Stockholders’ Agent and Parent shall jointly select an independent accountant of recognized national standing to resolve any remaining disagreements, which independent accountant shall not have provided services to the Stockholders’ Agent, the Company or Parent or its affiliates during the five-year period preceding the date of its selection (the “Independent Accountant”). The Stockholders’ Agent and Parent shall use their respective commercially reasonable efforts to cause such Independent Accountant to make its determination within 60 calendar days of accepting its selection. Within 10 business days after the date of determination of such Independent Accountant, Parent shall pay or cause to be paid to the Holders the Earnout Payment Amount, if any, in the manner set forth herein, subject to the right of offset provisions of Sections 2.4(a), (b) and (d). The decision of the Independent Accountant shall be a final, binding, and conclusive resolution of the parties’ dispute, shall be non-appealable, and shall not be subject to further review. Irrespective of the Independent Accountant’s decision, the costs and expenses of the Independent Accountant shall be split equally between the parties. In the event that the Stockholders’ Agent does not pay the full amount of one-half of the Independent Accountant’s costs and expenses, Parent shall be entitled to deduct the difference between one-half of the costs and expenses of the Independent Accountant and the amount actually paid by the Stockholders’ Agent to the Independent Accountant from the Earnout Payment Amount. Notwithstanding the foregoing, in any case, the parties shall be responsible for the payment of their respective costs and expenses, including any attorneys’ and accountants’ fees (other than any accountants’ fees payable to the Independent Accountant, which shall be split equally between the parties) incurred in connection with the dispute. Notwithstanding the foregoing, in any case, the parties shall be responsible for the payment of their respective costs and expenses, including any attorneys’ and accountants’ fees (other than any accountants’ fees payable to the Independent Accountant, which shall be split equally between the parties) incurred in connection with the dispute.
(iv) The Holders will be deemed to, as part of their approval and adoption of the Merger Agreement and the transactions contemplated therein and herein, and the Stockholders’ Agent hereby, generally, irrevocably, unconditionally and completely agree that (1) the Company and Parent (as the controlling stockholder of the Company as of the Effective Time of the Merger) and each of their respective Affiliates shall be entitled to operate the Business after the Effective Time as they determine in their sole and absolute discretion, and shall have no obligation to operate the Business in any manner that would maximize, maintain or protect the value of the Common Stock CVRs and the Preferred Stock CVRs, and as a result of such operation of the Business, there may be a diminution in or elimination of the value of the CVRs, (2) the Common Stock CVRs and the Preferred Stock CVRs represent contractual obligations of Parent, and none of Parent, the Company or any of their respective Affiliates owes any fiduciary duty of any type (including, without limitation, any duty of loyalty or care) to any Holder of Common Stock CVRs and/or Preferred Stock CVRs, and (3) each of the Holders and the Stockholders’ Agent shall be prohibited from asserting any dispute, right, claim, action, cause of action, controversy or remedy of any kind and nature against any of the Company, Parent or any of their Affiliates resulting from the operation of the Business after the Effective Time or resulting from any allegation of breach of fiduciary duty of any nature, other than claims for fraud or intentional misconduct (and other than the right of the Stockholders’ Agent to dispute the Closing Balance Sheet Payment under Section 2.4(b)(iii) and/or the Earnout Report under Section 2.4(c)(iii) above). Upon either (A) the occurrence of an allegation by the Stockholders’ Agent of any claim which may arise for fraud or intentional misconduct under this subsection (iv) or (B) the receipt by the Stockholders’ Agent of written notice made in accordance with Section 1.3 by any Holder to the Stockholders’ Agent of the occurrence of any claim which such Holder has a good faith belief has arisen for fraud or intentional misconduct under this subsection (iv) (in each case, a “Claim”), the Stockholders’ Agent shall provide notice of such Claim to Parent, stating, to the best of his or her understanding, the circumstances giving rise to the Claim, specifying the amount of the Claim and making a request for any payment then believed due (the “Notice”). Upon receipt of any such Notice by Parent, within the next 45 days thereafter, the parties shall use their reasonable best efforts to cooperate and arrive at a mutually acceptable resolution of such dispute. If a mutually acceptable resolution cannot be reached between the parties within such 45-day period, the Stockholders’ Agent may submit the dispute for resolution by a panel of three arbitrators selected from the panels of arbitrators of the American Arbitration Association in Santa ▇▇▇▇▇ County, California; provided, however, that (i) one arbitrator shall be selected by the Stockholders’ Agent, the second arbitrator shall be selected by Parent and the third arbitrator shall be selected by the two previously selected arbitrators and (ii) in all respects, such panel shall be governed by the American Arbitration Association’s then existing Commercial Arbitration Rules. If it is finally determined that all or a portion of such Claim amount is owed to the Holders, Parent shall, within 10 days of such determination, pay the Holders such amount owed, together with interest from the date that the Stockholders’ Agent initially requested such payment until the date of actual payment, at an annual rate equal to the prime interest rate then generally in effect on the date of payment as set forth in The Wall Street Journal. The arbitration panel’s decision shall be final and binding upon the parties, and may be entered and enforced in any court of competent jurisdiction by any party. The parties shall be responsible for their respective fees and costs (including any attorneys’ or accountants’ fees) incurred in connection with the arbitration. EACH HOLDER AND THE STOCKHOLDERS’ AGENT ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE FOR FRAUD OR INTENTIONAL MISCONDUCT UNDER THE PRECEDING SENTENCE IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO FRAUD OR INTENTIONAL MISCONDUCT UNDER THE PRECEDING SENTENCE. EACH HOLDER AND THE STOCKHOLDERS’ AGENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE SUCH WAIVER, (B) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, AND (C) IT MAKES SUCH WAIVER VOLUNTARILY.
(v) Notwithstanding anything to the contrary set forth in this Section 2.4(c), in the event of a Change of Control (as defined below) of Parent before December 31, 2005, the Aggregate Earnout Payment Amount payable pursuant to this Section 2.4(c) shall be at least $14,000,000 regardless of the actual Net Revenue recognized during the Earnout Period, subject, however, to the offset provisions of Section 2.4(a), (b) and (d). In event of a Change of Control of Parent as set forth herein, Parent shall make proper provisions so that the continuing or surviving corporation or entity shall assume the obligation to pay the Aggregate Earnout Payment Amount as set forth herein. For purposes of this Section 2.4(c)(v), a “Change of Control” shall mean (1) the consummation of any transaction, including without limitation, any merger or consolidation, pursuant to which any of the voting stock of Parent is converted into or exchanged for cash, securities or other property, other than any transaction where the voting stock of Parent outstanding immediately prior to such transaction is converted into or exchanged for voting stock of the surviving or transferee entity constituting more than 50% of such voting stock of such surviving or transferee entity (immediately after giving effect to such issuance) and other than an acquisition of Parent in which the management of Parent participates in ten percent or more of the fully-diluted equity of the acquiror; or (2) a sale of all or substantially all of Parent’s assets.