Share Purchase Agreement - Earn-Out Formula

Quebec English Civil law Unannotated

Share Purchase Agreement - Earn-Out Formula

When transferring a business by means of a share purchase, the price is often the key element for the transaction to be completed. This is understandable given that the seller does not want to undervalue the business and the buyer is hesitant to speculate on the projected value of the business.

To prevent a deadlock, the parties sometimes agree to a price adjustment based on the future profits of the business during a certain period of time following the closing of the transaction. This price adjustment is known as an "earn-out" and it is often based on the output of a business or based on an EBITDA calculation.

This share purchase agreement template sets out the legal framework of a share purchase transaction and includes an "earn-out" clause.

Share Purchase Agreement - Earn-Out Formula

Share Purchase Agreement - Earn-Out Formula

RECITALS
0.00 INTERPRETATION
0.01 Definitions
0.01.01 Accountants
0.01.02 Accounts Receivable
0.01.03 Activities
0.01.04 Adverse Event
0.01.05 Affiliate
0.01.06 Agreement
0.01.07 Assets
0.01.08 Breach
0.01.09 Claim
0.01.10 Clients
0.01.11 Closing
0.01.12 Closing Date
0.01.13 Closing Financial Statements
0.01.14 Confidential Information
0.01.15 Control
0.01.16 Dispute
0.01.17 EBITDA
0.01.18 Employees
0.01.19 Encumber or Encumbrance
0.01.20 Environment
0.01.21 Environmental Laws
0.01.22 Equipment
0.01.23 Escrow Agent
0.01.24 Escrow Agreement
0.01.25 Financial Statements
0.01.26 Force Majeure
0.01.27 Governmental Authorities
0.01.28 Hazardous Materials
0.01.29 Immovables
0.01.30 Important Contracts
0.01.31 Independent Auditor
0.01.32 Intellectual Property
0.01.33 Law
0.01.34 Leases
0.01.35 Legal Representatives
0.01.36 Loss
0.01.37 Net Income
0.01.38 Ordinary Course of Business
0.01.39 PARTY
0.01.40 Person
0.01.41 Prime Rate
0.01.42 Products
0.01.43 Services
0.01.44 Subject Shares
0.01.45 Subsidiary
0.01.46 Suppliers
0.01.47 Taxes
0.01.48 Tax Returns
0.01.49 Working Capital
0.02 Entire Agreement
0.03 Applicable Law
0.04 Non-Compliance
0.04.01 Severability
0.04.02 Substitute Provision
0.05 Miscellaneous
0.05.01 Cumulative Rights
0.05.02 No Waiver
0.05.03 Time and Days
a) Time of the Essence
b) Computation of Time
c) Delays
0.05.04 Financial References
0.05.05 Cross-References
0.05.06 Gender and Number
0.05.07 Headings
0.05.08 Knowledge
0.05.09 Approval
0.05.10 Accounting Standards
1.00 PURPOSE
1.01 Legal Transaction
1.01.01 Buy-Sell
1.01.02 Share Certificate
1.02 Conditions
1.02.01 Required by BUYER
1.02.02 Required by SELLER
1.02.03 Election
2.00 CONSIDERATION
2.01 Base Purchase Price
2.02 Working Capital Adjustment
3.00 TERMS OF PAYMENT
3.01 Payment
3.02 Closing Financial Statements
3.03 Objection to Closing Financial Statements
3.03.01 Submitting Notice of Objection
3.03.02 Dispute Settlement
a) Access
b) Negotiation
c) Independent Auditors
3.04 Working Capital Adjustment
3.05 Earn-out Adjustment
3.05.01 First Payment
3.05.02 Second Payment
3.05.03 Third Payment
3.05.04 Examining Accounts
3.05.05 Determining Purchase Price
3.05.06 Low EBITDA Multiple
3.06 Interest
3.07 Waiver of Compensation
3.08 Forfeiture of Term
4.00 SECURITY
4.01 Suretyship
4.01.01 Undertaking
a) Purpose
b) Default
c) Act or Omission by SELLER
4.01.02 Amendments
4.01.03 Solidary Liability
a) Undertaking
b) Claim Against SURETY
c) Waiver
5.00 MUTUAL REPRESENTATIONS AND WARRANTIES
5.01 Status
5.02 Authority
5.03 Binding Agreement
5.04 Resident in Canada
5.05 Canadian Status
5.06 Commission
5.07 Insurance
5.08 Nominee
5.09 Independent Legal Advice
5.10 Disclosure
5.11 Legal Proceedings
6.00 REPRESENTATIONS AND WARRANTIES OF BUYER
6.01 Exempt Investor
7.00 REPRESENTATIONS AND WARRANTIES OF SELLER
7.01 Civil Status
7.02 Subject Shares
7.02.01 Ownership
7.02.02 Encumbrances
7.02.03 Duly Issued
7.02.04 Right to Transfer
7.02.05 Dividends
7.02.06 Voting Rights (only if subject shares are voting shares)
7.02.07 Options
7.03 Share Capital
7.04 Consent and Notice
7.05 Books and Records
7.05.01 Content
7.05.02 Decisions
7.06 Employees
7.06.01 List
7.06.02 Labour Standards
7.06.03 Health and Safety
7.06.04 Collective Agreement
7.06.05 Benefit Plans
7.06.06 Employee Benefits
7.06.07 Claims
7.06.08 Strikes and Lock-outs
7.06.09 Pay Equity
7.06.10 Employment Contracts
7.06.11 Outstanding Amounts
7.06.12 Effect of Transaction
a) Employment Contracts
b) Payments
7.07 Operations After Closing Date
7.08 Absence of Certain Contracts
7.09 Financing
7.09.01 Loan Agreements
7.09.02 Leasing Agreements
7.09.03 No Default
7.09.04 No Conflict or Breach
7.09.05 Forfeiture of Term
7.10 Financial Statements
7.11 No Undisclosed Liabilities
7.12 Private Issuer
7.13 Status Quo Maintained
7.14 Suretyship
7.15 Advances
7.16 Related Persons
7.17 No Guarantees
7.18 Key Suppliers
7.19 Title to Assets
7.20 Corporate Compliance
7.20.01 Applicable Laws
7.20.02 Knowledge
7.21 Subsidiaries and Affiliates
7.21.01 Organizational Chart
7.21.02 Knowledge
7.22 Intellectual Property
7.22.01 List
7.22.02 Infringement
7.22.03 Title
7.22.04 Claims
7.22.05 Transaction
7.22.06 Copyright
7.22.07 Authorizations
7.22.08 Trademarks
a) Right to Register
b) Confusion
7.22.09 Patents
7.22.10 Trade Secrets and Know-How
7.23 Information Technology
7.23.01 IT Equipment
7.23.02 Software
7.23.03 Domain Names
7.24 Advertising and Promotions
7.25 Marketing
7.25.01 Trade Practices
7.25.02 Consumer Protection
7.25.03 E-commerce
7.26 Customer Credit
7.26.01 Accounts Receivable
7.26.02 Consignment
7.27 Insurance
7.27.01 List of Policies
7.27.02 Claims
7.27.03 Coverage
7.27.04 Good Standing
7.28 Important Contracts
7.29 Bank Accounts
7.30 Income and Other Taxes
7.30.01 Definitions
7.30.02 Payment
7.30.03 Filing
7.30.04 Default
7.30.05 Post-Closing
7.30.06 Notice of Assessment
7.30.07 Litigation
7.30.08 Source Deductions
7.30.09 Collecting Sales Taxes
7.30.10 Registration Numbers
7.31 Occupancy Rights
7.31.01 Valid Title to Immovables
7.31.02 Leases
7.32 Real Estate Transactions
7.33 Procurement
7.33.01 Equipment
a) Ownership
b) Condition
c) Maintenance and Warranties
d) Encumbrance
7.33.02 Supply Agreements
7.33.03 Suppliers
7.34 Operations
7.34.01 Clients
7.34.02 Finished Products
7.34.03 Warranties
a) List
b) Claims
7.34.04 Product Recalls
7.34.05 Discriminatory Practices
7.34.06 Conduct
7.35 Permits and Licences
7.35.01 List
7.35.02 Situation
7.35.03 Good Standing
7.35.04 No Restrictions
7.36 Public Contracts
7.36.01 Admissibility
7.36.02 RENA
7.36.03 Register of Persons Ineligible for Public Contracts of DGEQ
7.36.04 AMF
7.36.05 Revenu Québec Certificate
7.36.06 Unsatisfactory Performance
7.37 Environmental Matters
7.37.01 Environmental Laws
a) Compliance
b) Places of Business
7.37.02 Authorizations
7.37.03 Notice of Default
7.37.04 Hazardous Materials
7.38 Bankruptcy
8.00 MUTUAL DUTIES AND OBLIGATIONS
8.01 Confidential Information
8.01.01 Undertaking
8.01.02 Duration of Undertaking
8.01.03 End of Agreement
a) Request for Return
b) Destruction
8.01.04 Penalty
8.02 Insurance
8.02.01 Insured Risks
8.02.02 Amount of Coverage
8.02.03 Insurer
8.02.04 Prior Notice
8.02.05 Additional Named Insured
8.02.06 Certificates of Insurance
8.02.07 Notice of Modification or Cancellation
8.03 Continuation of Representations and Warranties
8.04 Indemnification
8.04.01 Scope
8.04.02 Procedure
8.04.03 Third-Party Claim
8.04.04 Duration of Representations and Warranties
8.04.05 Deductible
8.04.06 Limitation
8.05 Disclosure of Agreement
8.05.01 Undertaking
8.05.02 Public Announcement
8.05.03 Exception
8.05.04 Default
8.06 Further Assurances
9.00 DUTIES AND OBLIGATIONS OF BUYER
9.01 Payment
9.02 Release and Discharge
9.03 Exclusive Use of Vehicle
10.00 DUTIES AND OBLIGATIONS OF SELLER
10.01 Non-Competition
10.01.01 Undertaking
a) Definition
b) Scope
10.01.02 Breach of Undertaking
a) Automatic Penalty
b) Payment
c) Protective Measures
10.01.03 Reasonableness of Clause
10.02 Non-Solicitation of Personnel
10.02.01 Scope of Undertaking
10.02.02 Breach of Undertaking
a) Automatic Penalty
b) Payment
c) Protective Measures
10.03 Non-Solicitation of Customers
10.03.01 Undertaking
a) Definitions
b) Scope
10.03.02 Breach of Undertaking
a) Automatic Penalty
b) Payment
c) Protective Measures
10.04 Resignation
10.05 Surrender of Share Certificates
10.06 Payment
10.07 Tax Returns (if all of corporation's shares are sold)
10.07.01 Preparing
10.07.02 Collaboration
10.08 Transition Period (if all of corporation's shares are sold)
10.08.01 Information
10.08.02 Support
10.09 Discharge
11.00 SPECIAL PROVISIONS
11.01 Assignment
11.01.01 Prohibition
11.01.02 Reasonable Cause
11.01.03 Effect of Breach
11.01.04 Exception
11.02 Force Majeure
11.02.01 Limitation on Liability
11.02.02 Duty
11.02.03 Right of Other PARTY
11.03 Relationship Between the PARTIES
11.04 Consulting Fees and Costs
12.00 GENERAL PROVISIONS
12.01 Notices
12.02 Dispute Resolution
12.02.01 Good Faith Negotiations
a) Written Notice
b) Meeting
c) Legal Proceedings
d) Protective Measures
12.02.02 Mediation
a) Process
b) Settlement
c) Arbitration [OR Legal Proceeding]
12.02.03 Arbitration Procedure (if V1 of 12.02.02 c) applies)
a) Notice
b) Reply
c) Appointment of a Third Arbitrator
d) Subcontracts
e) Confidentiality
f) Hearing
g) Ruling
h) Costs
i) Supplementary Rules
12.03 Choice of Forum
12.04 Counterparts
12.05 Amendment
12.06 No Waiver of Rights
12.07 Electronic Transmission and Signature
12.08 Language
13.00 TERMINATION
14.00 EFFECTIVE DATE
14.01 [Title]
14.02 Exceptions (if applicable)
14.02.01 Retroactive
14.02.02 Deferred
15.00 DURATION
16.00 SCOPE

 

 

SCHEDULE A – EXCERPT OF A RESOLUTION OF BUYER
SCHEDULE 0.01.07 – ASSETS
SCHEDULE 0.01.22 – EQUIPMENT
SCHEDULE 0.01.25 – FINANCIAL STATEMENTS
SCHEDULE 0.01.29 – IMMOVABLES
SCHEDULE 0.01.34 – LEASES
SCHEDULE 4.01.01 – SURETYSHIP
SCHEDULE 7.03 – SHARE CAPITAL
SCHEDULE 7.04 – CONSENT AND NOTICE
SCHEDULE 7.06.01 – EMPLOYEES
SCHEDULE 7.06.04 – COLLECTIVE AGREEMENT
SCHEDULE 7.06.05 – BENEFIT PLANS
SCHEDULE 7.06.06 – EMPLOYEE BENEFITS
SCHEDULE 7.06.11 – OUTSTANDING AMOUNTS - EMPLOYEES
SCHEDULE 7.09.01 – LOAN AGREEMENTS
SCHEDULE 7.09.02 – LEASING AGREEMENTS
SCHEDULE 7.18 – KEY SUPPLIERS
SCHEDULE 7.19 – TITLE TO ASSETS
SCHEDULE 7.21.01 – ORGANIZATIONAL CHART - SUBSIDIARIES / AFFILIATES
SCHEDULE 7.22.01 – INTELLECTUAL PROPERTY
SCHEDULE 7.27.01 – INSURANCE POLICIES
SCHEDULE 7.27.02 – INSURANCE CLAIMS
SCHEDULE 7.28 – IMPORTANT CONTRACTS
SCHEDULE 7.29 – BANK ACCOUNTS
SCHEDULE 7.31.01 – TITLE TO IMMOVABLES
SCHEDULE 7.33.02 – SUPPLY AGREEMENTS
SCHEDULE 7.34.03 – WARRANTIES
SCHEDULE 7.35.01 – PERMITS AND LICENCES
SCHEDULE 7.36.06 – UNSATISFACTORY PERFORMANCE
SCHEDULE 10.01.01 – NON-COMPETITION - TERRITORY
SCHEDULE 10.03.01 A – NON-SOLICITATION - CLIENTS
SCHEDULE 10.03.01 B – NON-SOLICITATION - PRODUCTS AND SERVICES