Schedule - Initial And Deferred Purchase Price in Shares with Earn Out (Share Sales)

This Schedule - Initial and Deferred Purchase Price in shares with Earn Out (Share Sales) is a direct replacement for the schedule in the relevant share sale agreement which deals with the purchase price. The default provision in each of the agreements is for the purchase price to be paid in cash at Completion. This schedule allows for the purchase price to consist of an initial allotment to the Seller(s) of shares in the Buyer at Completion and a further allotment of shares based on a multiple of the profits of the target company during an earn-out period. The schedule will typically be used in an institutional buy-out (“IBO”) where a venture capitalist or large institution makes the acquisition but retains the management to run the company on a day to day basis. Having the earn-out incentivises the management team to perform.

An independent accountant will value the shares of the Buyer for the purposes of calculating the value of the Buyer’s shares for the Initial Consideration and the Deferred Consideration. The Buyer’s Accountants will calculate the company’s profits during the earn-out period but the Seller(s) will have the opportunity to disagree with the calculations and appoint an independent valuer. If any of the Seller(s) cease to be employed by the company before the end of the earn-out period due to ill health, death or termination of their service agreement (except for summary dismissal) then they will be entitled to the full Deferred Consideration. If not, then the Deferred Consideration will be pro-rated. The Deferred Consideration is subject to a cap, which must be specified. The Deferred Consideration can be set off against any sums owed to the Buyer for claims under the agreement (such as claims under the warranties). Protection of the company during the earn-out period is given in paragraph 4, which prevents the Buyer from artificially reducing the profits of the company thereby reducing the Deferred Consideration.

The Seller(s) will not be entitled to dividends declared or paid by reference to a date prior to the allotment of the initial or deferred consideration shares. The initial and deferred consideration shares must be retained for a specified number of months after their respective allotment.

Optional phrases / clauses are enclosed in square brackets. These should be read carefully and selected so as to be compatible with one another. Unused options should be removed from the document.

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