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) 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 cash sum payable at Completion and a further cash sum 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. The earn-out gives the management team an incentive to perform.

The Deferred Consideration entitlement will be calculated by the Buyer’s Accountants by reference to the company’s profits 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.

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