Schedule - Initial and Deferred Purchase Price in Cash with Earn Out (Share Sales)

This Schedule - Initial and Deferred Purchase Price in Cash with Earn Out (Share Sales) replaces the purchase price schedule in the relevant share sale agreement where the default position is that the purchase price is paid in cash at completion.

It is designed for transactions where the purchase price comprises an initial cash sum payable at completion and a further deferred cash sum calculated by reference to a multiple of the target company’s profits during an earn-out period. It is typically used in an institutional buy-out (IBO) where the buyer retains management to run the company day to day and the earn-out provides an incentive to perform.

What does Schedule - Initial and Deferred Purchase Price in Cash with Earn Out (Share Sales) do?

It sets out a purchase price mechanism combining an initial completion payment with deferred consideration linked to the target’s performance over a defined earn-out period.

What does Schedule - Initial and Deferred Purchase Price in Cash with Earn Out (Share Sales) cover?

• An initial cash payment at completion and deferred consideration calculated by reference to profits during an earn-out period.
• Calculation of the deferred consideration by the buyer’s accountants, with the seller or sellers able to dispute the calculation and appoint an independent valuer.
• Entitlement rules where a seller ceases employment before the end of the earn-out period due to ill health, death or termination of a service agreement (other than summary dismissal), including pro-rating where appropriate.
• A cap on the deferred consideration, to be specified.
• A set-off mechanism allowing deferred consideration to be set off against sums owed to the buyer for claims under the agreement (for example, warranty claims).
• Protection provisions intended to prevent the buyer from artificially reducing the target’s profits during the earn-out period, thereby reducing the deferred consideration.

When should you use Schedule - Initial and Deferred Purchase Price in Cash with Earn Out (Share Sales)?

• The parties have agreed that the purchase price will include both an initial completion payment and a deferred earn-out element based on the target’s profits.
• The buyer is retaining management and the earn-out is intended to incentivise performance during the earn-out period.
• You need a mechanism for profit-based calculation, dispute resolution via an independent valuer, and protection against artificial profit reduction during the earn-out period.

Schedule - Initial and Deferred Purchase Price in Cash with Earn Out (Share Sales) is part of Corporate. Just £38.50 + VAT provides unlimited downloads from Corporate for 1 year.