Post-Closing Earn-Out. (a) For (i) the period commencing the date after the Closing Date and ending April 24, 1999 ("Initial Fiscal Period"), (ii) for each of Buyer's next two (2) fiscal years following the Initial Fiscal Period, and (iii) the period commencing April 29, 2001 and ending on the date that is three (3) years after the Closing Date (such periods individually an "Annual Earn-out Period"), the Stockholders (as a group) shall be entitled to receive from the Buyer thirty-three percent (33%) of the annual Adjusted EBITDA (as defined herein) of the Company for any Annual Earn-out Period, on the specific terms and conditions set forth in this Section 1.7 (such payments the "Earn-out"). Any Earn-out due shall be payable within ninety(90) days after the last day of the Annual Earn-out Period and shall be payable, at the option of Buyer, in cash or in voting common stock (NASDAQ-WORK) of the Buyer (any such common stock the "Earn-out Stock"). Earn-out Stock will not be registered under the Securities Act of 1933 ("Securities Act") and the Stockholders will have no registration or other rights that would obligate Buyer to cause the Earn-out Stock to be registered under the Securities Act. For purposes of valuing the Earn-out Stock under this Section 1.7, the Stockholders shall be entitled to receive such number of shares of common stock of Buyer ("Workflow Common Stock") as is equal to the Earn-out due divided by the average of the closing sales prices of the Workflow Common Stock on the NASDAQ National Market System (or any other automated quotation system of a registered securities association or stock exchange on which Workflow Common Stock is then traded) for the thirty (30) trading days prior to the day on which the Earn-out is due. (b) Adjusted EBITDA for any Annual Earn-out Period shall mean the Company's earnings before interest, taxes, depreciation and amortization, as adjusted to reflect add-backs of one time, non-recurring costs incurred by the Company, as specifically reasonably agreed to by the Company and the Stockholders and reflected on the Earn-out Statements (as defined below) ("Add-Backs"). In determining Adjusted EBITDA, no effect shall be given to the results of operations of any direct or indirect parent or subsidiary of the Company. Buyer shall prepare a statement of Adjusted EBITDA for each Annual Earn-out Period, including the Add-Backs (collectively, "Earn-out Statements"). Each Earn-out Statement shall be delivered to the Stockholders' Representative no later than ninety (90) days after the last day of each Annual Earn-out Period. The Stockholders' Representative shall have thirty (30) days from the receipt of any Earn-out Statement to notify the Buyer if it disputes such Earn-out Statement. If the Stockholders' Representative has delivered notice of such a dispute within such thirty (30) day period, then Buyer and the Stockholders' Representative shall meet to discuss resolution of such dispute. If within ten (10) business days thereafter, the Buyer and the Stockholders' Representative are not able to resolve such dispute, then the Independent Accountant shall be appointed to resolve such dispute. The Independent Accountant shall review the Company's books and records and the Earn-out Statements (and related information including all supporting work papers and other work product which shall be made available in Santa Ana, California) to determine the amount, if any, of the Earn-out. The Independent Accountant shall be directed to consider all agreements, contracts, commitments or other documents (or summaries thereof) that it determines should be considered in accordance with GAAP and the terms of this Agreement to make the determination of the Earn-out. The Independent Accountant shall make its determination of the Earn-out, if any, within thirty (30) days of its selection. The determination of the Independent Accountant shall be final and binding on the parties hereto. If there is a determination that the Stockholders are owed an Earn-out in excess of that paid or stated by Buyer for any particular Annual Earn-out Period, Buyer shall immediately pay the difference between the Earn-out previously paid and the Earn-out owed to the Stockholders. If there is a determination that the Buyer has paid an Earn-out in excess of that which is due to the Stockholders for any particular Annual Earn-out Period, then the Stockholders shall immediately refund such excess to the Buyer. The costs of the Independent Accountant shall be borne by the party (either Buyer or the Stockholders as a group) whose determination of the Earn-out was further from the determination of the Independent Accountant, or equally by Buyer and the Stockholders as a group in the event that the determination by the Independent Accountant is equidistant between the determination of the Earn-out by the Buyer and Stockholders, respectively. (c) To the extent that the Company has a negative Adjusted EBITDA during any Annual Earn-out Period (such amount an "Adjusted EBITDA Loss"), the Adjusted EBITDA Loss shall be carried forward to the subsequent Annual Earn-out Period(s) and aggregated with the Adjusted EBITDA (or Adjusted EBITDA Loss) for such subsequent Annual Earn-out Period(s) for purposes of determining the Earn-out, if any, due for such subsequent Annual Earn-out Period(s). All Adjusted EBITDA Losses shall continue to be carried forward on an annual basis until such time as Adjusted EBITDA is fully offset by the total amount of the Adjusted EBITDA Losses. Any Adjusted EBITDA Losses will not effect prior payments of Earn-outs for Annual Earn-out Periods in which the Company had a positive Adjusted EBITDA. (d) In the event that, after the date of this Agreement, the Company is merged (or otherwise consolidated) into Buyer or any direct or indirect subsidiary of Buyer (any such entity a "Merger Affiliate") such that the Company is not the surviving corporation under applicable law, the Earn-out shall only be payable with respect to the business and operations conducted by the Company as of the date of this Agreement and without reference to the business and operations of the Merger Affiliate. For purposes of calculating the Earn-out payable under this Section 1.7 after a merger or other consolidation by the Company and a Merger Affiliate, the Buyer shall cause such Merger Affiliate to (i) conduct the Company's former business and operations as a division of the Merger Affiliate ("Company Division") and (ii) maintain such financial reporting systems as are necessary to accurately calculate the Adjusted EBITDA (or Adjusted EBITDA Losses) of the Company Division. Without in any way limiting Buyer's rights to enter into a transaction with a Merger Affiliate, Buyer acknowledges that, based on the Buyer's and the Company's existing operations, it is intended that all products sold or revenue generated from the Company's operations in Santa Ana, California will be given full effect when determining Adjusted EBITDA of the Company pursuant to this Section 1.7. (e) Except as otherwise expressly agreed to by Buyer and the Company, the Earn-out shall only be payable with respect to the business and operations currently conducted by the Company (or by the Company Division) and without reference to any other entity hereafter merged into or otherwise consolidated with the Company. In the event that the Buyer causes any entity to merge or otherwise consolidate into the Company such that the Company is the surviving corporation under applicable law, the Company shall maintain such financial reporting systems as are necessary to accurately calculate the Adjusted EBITDA (or Adjusted EBITDA Losses) of the Company (or the Company Division) without taking into account the results of any other operations of the Company or any such other acquired or merged entity. (f) Notwithstanding anything in this Section 1.7 to the contrary, Buyer shall have the right to reduce any amounts otherwise payable as an Earn-out by the amount of any indemnification obligations of the Stockholders under Article 8. (g) Notwithstanding anything in this Section 1.7 to the contrary, during the period from the Closing Date through the date which is three (3) years after the Closing Date, neither the Company, Buyer or any Merger Affiliate (in the case of a transaction referred to in Section 1.7(d) above), shall dismantle, transfer or sell the business or assets or sales organization of the Company (or Company Division, as applicable) relevant to the generation of Adjusted EBITDA for computation of the Earn-out, provided, however, that (i) transactions meeting the requirements of Sections 1.7(d) and 1.7(e) may be implemented, (ii) the Company (or the Company Division, as applicable) may sell inventory and other assets, and replace, improve or dispose of obsolete or non-usable assets, in the ordinary course of business, (iii) all or substantially all of the assets, business or capital stock of the Company or Company Division may be sold to a bona-fide third party purchaser which assumes in writing, in favor of the Stockholders, all obligations of the Buyer under this Section 1.7 with respect to payment of the Earn-out from and after the date of such sale and (iv) the Company's business operations may be discontinued and its assets liquidated if, on a sustained and continuing basis, the Company is unable to operate profitability and it is not economically feasible to continue such business, or if there is a catastrophic event such that the Company is unable to utilize its operational facilities on a sustained and continuing basis.
Appears in 1 contract
Post-Closing Earn-Out. (a) For (i) the period commencing the date after the Closing Date and ending April 24, 1999 ("Initial Fiscal Period"), (ii) for each of Buyer's next two four (24) fiscal years following the Initial Fiscal Period, and (iii) the period commencing April 2927, 2001 2003 and ending on the date that is three five (35) years after the Closing Date date of this Agreement (such periods individually an "Annual Earn-out Period"), the Stockholders (as a group) Stockholder shall be entitled to receive from the Buyer thirty-three ten percent (3310%) of the annual Adjusted EBITDA Gross Profit (as defined herein) of the Company for any Annual Earn-out Period, on the specific terms and conditions set forth in this Section 1.7 1.6 (such payments the "Earn-out"). Any Earn-out due shall be payable in cash within ninety(90thirty (30) days after the last day of the Annual Earn-out Period and shall be payable, at the option of Buyer, in cash or in voting common stock (NASDAQ-WORK) of the Buyer (any such common stock the "Earn-out Stock"). Earn-out Stock will not be registered under the Securities Act of 1933 ("Securities Act") and the Stockholders will have no registration or other rights that would obligate Buyer to cause the Earn-out Stock to be registered under the Securities Act. For purposes of valuing the Earn-out Stock under this Section 1.7, the Stockholders shall be entitled to receive such number of shares of common stock of Buyer ("Workflow Common Stock") as is equal to the Earn-out due divided by the average of the closing sales prices of the Workflow Common Stock on the NASDAQ National Market System (or any other automated quotation system of a registered securities association or stock exchange on which Workflow Common Stock is then traded) for the thirty (30) trading days prior to the day on which the Earn-out is duePeriod.
(b) Adjusted EBITDA Gross Profit for any Annual Earn-out Period period shall mean the amount of the Company's earnings before interest, taxes, depreciation "Net Sales" less "Cost of Goods Sold," in each case on an unconsolidated basis and amortization, as adjusted to reflect add-backs of one time, non-recurring costs incurred by the Company, as specifically reasonably agreed to by the Company and the Stockholders and reflected on the Earn-out Statements (as defined below) ("Add-Backs"). In determining Adjusted EBITDA, no without giving effect shall be given to the results of operations of any direct or indirect parent or subsidiary of the Company. Buyer shall prepare a statement "Net Sales" for any period means the invoiced amount of Adjusted EBITDA for each Annual goods sold by the Company during such period to the Earn-out PeriodAccounts (as defined below), including payment for which is actually received by the Add-Backs (collectivelyCompany, less actual trade discounts, returns, artwork to the extent not paid by customers, and freight to the extent not paid by customers. "Earn-out Statements"). Each Earn-out Statement shall be delivered to Accounts" means those accounts of the Stockholders' Representative no later than ninety (90Company existing on the date hereof as identified on Schedule 1.6(b) days after and any new accounts of the last day Company obtained or procured by the Company and any of each the Company's current or future sales representatives or employees during any Annual Earn-out Period. The Stockholders' Representative shall have thirty (30) days from "Cost of Goods Sold" for any period means the receipt cost of any Earn-out Statement goods sold which are allocable to notify the Buyer if it disputes such Earn-out Statement. If the Stockholders' Representative has delivered notice of such a dispute within such thirty (30) day period, then Buyer and the Stockholders' Representative shall meet to discuss resolution of such dispute. If within ten (10) business days thereafter, the Buyer and the Stockholders' Representative are not able to resolve such dispute, then the Independent Accountant shall be appointed to resolve such dispute. The Independent Accountant shall review the Company's books and records and the Earn-out Statements (and related information including all supporting work papers and other work product which shall be made available in Santa Ana, California) to determine the amount, if any, of the Earn-out. The Independent Accountant shall be directed to consider all agreements, contracts, commitments or other documents (or summaries thereof) that it determines should be considered Net Sales as determined in accordance with GAAP and the terms of this Agreement to make the determination of the Earn-out. The Independent Accountant shall make its determination of the Earn-out, if any, within thirty (30) days of its selection. The determination of the Independent Accountant shall be final and binding on the parties hereto. If there is a determination that the Stockholders are owed an Earn-out in excess of that paid or stated by Buyer for any particular Annual Earn-out Period, Buyer shall immediately pay the difference between the Earn-out previously paid and the Earn-out owed to the Stockholders. If there is a determination that the Buyer has paid an Earn-out in excess of that which is due to the Stockholders for any particular Annual Earn-out Period, then the Stockholders shall immediately refund such excess to the Buyer. The costs of the Independent Accountant shall be borne by the party (either Buyer or the Stockholders as a group) whose determination of the Earn-out was further from the determination of the Independent Accountant, or equally by Buyer and the Stockholders as a group in the event that the determination by the Independent Accountant is equidistant between the determination of the Earn-out by the Buyer and Stockholders, respectively.
(c) To the extent that the Company has a negative Adjusted EBITDA during any Annual Earn-out Period (such amount an "Adjusted EBITDA Loss"), the Adjusted EBITDA Loss shall be carried forward to the subsequent Annual Earn-out Period(s) and aggregated with the Adjusted EBITDA (or Adjusted EBITDA Loss) for such subsequent Annual Earn-out Period(s) for purposes of determining the Earn-out, if any, due for such subsequent Annual Earn-out Period(s). All Adjusted EBITDA Losses shall continue to be carried forward on an annual basis until such time as Adjusted EBITDA is fully offset by the total amount of the Adjusted EBITDA Losses. Any Adjusted EBITDA Losses will not effect prior payments of Earn-outs for Annual Earn-out Periods in which the Company had a positive Adjusted EBITDA.
(d) In the event that, after the date of this Agreement, the Company is merged (or otherwise consolidated) into Buyer or any direct or indirect subsidiary of Buyer (any such entity a "Merger Affiliate") such that the Company is not the surviving corporation under applicable law, the Earn-out shall only be payable with respect to the business and operations conducted by the Company as of the date of this Agreement and without reference to the business and operations of the Merger Affiliate. For purposes of calculating the Earn-out payable under this Section 1.7 after a merger or other consolidation by the Company and a Merger Affiliate, the Buyer shall cause such Merger Affiliate to (i) conduct the Company's former business and operations as a division of the Merger Affiliate ("Company Division") and (ii) maintain such financial reporting systems as are necessary to accurately calculate the Adjusted EBITDA (or Adjusted EBITDA Losses) of the Company Division. Without in any way limiting Buyer's rights to enter into a transaction with a Merger Affiliate, Buyer acknowledges that, based on the Buyer's and the Company's existing operations, it is intended that all products sold or revenue generated from the Company's operations in Santa Ana, California will be given full effect when determining Adjusted EBITDA of the Company pursuant to this Section 1.7.
(e) Except as otherwise expressly agreed to by Buyer and the Company, the Earn-out shall only be payable with respect to the business and operations currently conducted by the Company (or by the Company Division) and without reference to any other entity hereafter merged into or otherwise consolidated with the Company. In the event that the Buyer causes any entity to merge or otherwise consolidate into the Company such that the Company is the surviving corporation under applicable law, the Company shall maintain such financial reporting systems as are necessary to accurately calculate the Adjusted EBITDA (or Adjusted EBITDA Losses) of the Company (or the Company Division) without taking into account the results of any other operations of the Company or any such other acquired or merged entity.
(f) Notwithstanding anything in this Section 1.7 to the contrary, Buyer shall have the right to reduce any amounts otherwise payable as an Earn-out by the amount of any indemnification obligations of the Stockholders under Article 8.
(g) Notwithstanding anything in this Section 1.7 to the contrary, during the period from the Closing Date through the date which is three (3) years after the Closing Date, neither the Company, Buyer or any Merger Affiliate (in the case of a transaction referred to in Section 1.7(d) above), shall dismantle, transfer or sell the business or assets or sales organization of the Company (or Company Division, as applicable) relevant to the generation of Adjusted EBITDA for computation of the Earn-out, GAAP; provided, however, that (i) transactions meeting the requirements Cost of Sections 1.7(d) and 1.7(e) may Goods Sold shall not be implementedreduced by any purchased discounts, (ii) the Company (bulk purchase discounts, discounts for payment, special discounts or the Company Division, as applicable) may sell inventory and other assets, and replace, improve or dispose of obsolete or non-usable assets, in the ordinary course of business, (iii) all or substantially all of the assets, business or capital stock of the Company or Company Division may be sold to a bona-fide third party purchaser which assumes in writing, in favor of the Stockholders, all obligations of the Buyer under this Section 1.7 with respect to payment of the Earn-out from and after the date of such sale and (iv) the Company's business operations may be discontinued and its assets liquidated if, on a sustained and continuing basis, the Company is unable to operate profitability and it is not economically feasible to continue such business, or if there is a catastrophic event such that the Company is unable to utilize its operational facilities on a sustained and continuing basissimilar incentives.
Appears in 1 contract
Post-Closing Earn-Out. (a) For (i) the period commencing the date day after the Closing Date and ending April 24, 1999 ("Initial Fiscal Period"), (ii) for each of Buyer's next two four (24) fiscal years following the Initial Fiscal Period, and (iii) the period commencing April 2927, 2001 2003 and ending on the date that is three five (35) years after the Closing Date (such periods periods, whether or not constituting an entire fiscal year, individually an "Annual Earn-out Period"" for purposes of this Section 1.7), the Stockholders (as a group) shall be entitled to receive from the Buyer thirty-three forty percent (3340%) of the annual Adjusted EBITDA (as defined herein) of the Company for any Annual Earn-out Period, on the specific terms and conditions set forth in this Section 1.7 (such payments the "Earn-out"). Any Earn-out due shall be payable in cash within ninety(90thirty (30) days after the last day of the Annual Earn-out Period and shall be payable, at the option of Buyer, in cash or in voting common stock (NASDAQ-WORK) of the Buyer (any such common stock the "Earn-out Stock"). Earn-out Stock will not be registered under the Securities Act of 1933 ("Securities Act") and payable to the Stockholders will have no registration or other rights that would obligate Buyer in proportion to cause the Earn-out their respective holdings of Stock to be registered under the Securities Act. For purposes of valuing the Earn-out Stock under this Section 1.7, the Stockholders shall be entitled to receive such number of shares of common stock of Buyer ("Workflow Common Stock") as is equal to the Earn-out due divided by the average of the closing sales prices of the Workflow Common Stock set forth on the NASDAQ National Market System (or any other automated quotation system of a registered securities association or stock exchange on which Workflow Common Stock is then traded) for the thirty (30) trading days prior to the day on which the Earn-out is dueSchedule 1.2(a)(i).
(b) Adjusted EBITDA for any Annual Earn-out Period shall mean the Company's earnings before interest, taxes, depreciation and amortization, as adjusted to reflect add-backs of one time, non-recurring costs incurred by the Company, as specifically reasonably agreed to by the Company and the Stockholders and reflected on the Earn-out Statements (as defined below) ("Add-Backs"). In determining Adjusted EBITDA, no effect shall be given to the results of operations of any direct or indirect parent or subsidiary of the Company. Buyer shall prepare a statement of Adjusted EBITDA for each Annual Earn-out Period, including the Add-Backs (collectively, "Earn-out Statements"). Each Earn-out Statement shall be delivered to the Stockholders' Representative no later than ninety thirty (9030) days after the last day of each Annual Earn-out Period. The Stockholders' Representative shall have thirty (30) days from the receipt of any Earn-out Statement to notify the Buyer if it disputes such Earn-out Statement. If the Stockholders' Representative has delivered notice of such a dispute within such thirty (30) 30 day period, then Buyer and the Stockholders' Representative shall meet to discuss resolution of such dispute. If within ten (10) business days thereafter, the Buyer and the Stockholders' Representative are not able to resolve such dispute, then Buyer and the Stockholders' Representative shall designate the Independent Accountant shall be appointed Accounting Firm to resolve such dispute. The Independent Accountant Accounting Firm shall review the Company's books and records and the Earn-out Statements (and related information including all supporting work papers and other work product which shall be made available in Santa Ana, Californiainformation) to determine the amount, if any, of the Earn-out. The Independent Accountant Accounting Firm shall be directed to consider all agreements, contracts, commitments or other documents (or summaries thereof) that it determines should be considered in accordance with GAAP and the terms of this Agreement to make the determination of the Earn-out. The Independent Accountant Accounting Firm shall make its determination of the Earn-out, if any, within thirty (30) days of its selection. The determination of the Independent Accountant Accounting Firm shall be final and binding on the parties hereto. If there is a determination that the Stockholders are owed an Earn-out in excess of that paid or stated by Buyer for any particular Annual Earn-out Period, Buyer shall immediately pay the difference between the Earn-out previously paid and the Earn-out owed to the Stockholders. If there is a determination that the Buyer has paid an Earn-out in excess of that which is due to the Stockholders for any particular Annual Earn-out Period, then the Stockholders shall immediately refund such excess to the Buyer. The costs of the Independent Accountant Accounting Firm shall be borne by the party (either Buyer or the Stockholders as a group) whose determination of the Earn-out was further from the determination of the Independent AccountantAccounting Firm, or equally by Buyer and the Stockholders as a group in the event that the determination by the Independent Accountant Accounting Firm is equidistant between the determination of the Earn-out by the Buyer and Stockholders, respectively.
(c) To the extent that the Company has a negative Adjusted EBITDA during any Annual Earn-out Period (such amount an "Adjusted EBITDA Loss"), the Adjusted EBITDA Loss shall be carried forward to the subsequent Annual Earn-out Period(s) and aggregated with the Adjusted EBITDA (or Adjusted EBITDA Loss) for such subsequent Annual Earn-out Period(s) for purposes of determining the Earn-out, if any, due for such subsequent Annual Earn-out Period(s). All Adjusted EBITDA Losses shall continue to be carried forward on an annual basis until such time as Adjusted EBITDA is fully offset by the total amount of the Adjusted EBITDA Losses. Any Adjusted EBITDA Losses will not effect prior payments of Earn-outs for Annual Earn-out Periods in which the Company had a positive Adjusted EBITDA.
(d) In the event that, after the date of this Agreement, the Company is merged (or otherwise consolidated) into Buyer or any direct or indirect subsidiary of Buyer (any such entity a "Merger Affiliate") such that the Company is not the surviving corporation under applicable law, the Earn-out shall only be payable with respect to the business and operations conducted by the Company as of the date of this Agreement and without reference to the business and operations of the Merger Affiliate. For purposes of calculating the Earn-out payable under this Section 1.7 after a merger or other consolidation by the Company and a Merger Affiliate, the Buyer shall cause such Merger Affiliate to (i) conduct the Company's former business and operations as a division of the Merger Affiliate ("Company Division") and (ii) maintain such financial reporting systems as are necessary to accurately calculate the Adjusted EBITDA (or Adjusted EBITDA Losses) of the Company Division. Without in any way limiting Buyer's rights to enter into a transaction with a Merger Affiliate, Buyer acknowledges that, based on the Buyer's and the Company's existing operations, it is intended that all products sold or revenue generated from the Company's operations in Santa AnaColumbia, California South Carolina will be given full effect when determining Adjusted EBITDA of the Company pursuant to this Section 1.7.
(e) Except as otherwise expressly agreed to by Buyer and the Company, the Earn-out shall only be payable with respect to the business and operations currently conducted by the Company (or by the Company Division) and without reference to any other entity hereafter merged into or otherwise consolidated with the Company. In the event that the Buyer causes any entity to merge or otherwise consolidate into the Company such that the Company is the surviving corporation under applicable law, the Company shall maintain such financial reporting systems as are necessary to accurately calculate the Adjusted EBITDA (or Adjusted EBITDA Losses) of the Company (or the Company Division) without taking into account the results of any other operations of the Company or any such other acquired or merged entity.
(f) Notwithstanding anything in this Section 1.7 to the contrary, (i) Buyer shall have the right to reduce any amounts otherwise payable as an Earn-out by the amount of any indemnification obligations of the Stockholders under Article 88 and (ii) no effect will be given to the Contingent Litigation Liability (whether or not ultimately paid by the Company) for purposes of determining the Earn-outs due to the Stockholders under this Section 1.7.
(g) Notwithstanding anything in Any Earn-outs due pursuant to this Section 1.7 shall be payable to the contrary, during the period from the Closing Date through the date which is three (3) years after the Closing Date, neither the Company, Buyer or any Merger Affiliate (Stockholders in the case proportion to their respective holdings of a transaction referred to in Section 1.7(d) aboveStock as set forth on Schedule 1.2(a)(i), shall dismantle, transfer or sell the business or assets or sales organization of the Company (or Company Division, as applicable) relevant to the generation of Adjusted EBITDA for computation of the Earn-out, provided, however, that (i) transactions meeting the requirements of Sections 1.7(d) and 1.7(e) may be implemented, (ii) the Company (or the Company Division, as applicable) may sell inventory and other assets, and replace, improve or dispose of obsolete or non-usable assets, in the ordinary course of business, (iii) all or substantially all of the assets, business or capital stock of the Company or Company Division may be sold to a bona-fide third party purchaser which assumes in writing, in favor of the Stockholders, all obligations of the Buyer under this Section 1.7 with respect to payment of the Earn-out from and after the date of such sale and (iv) the Company's business operations may be discontinued and its assets liquidated if, on a sustained and continuing basis, the Company is unable to operate profitability and it is not economically feasible to continue such business, or if there is a catastrophic event such that the Company is unable to utilize its operational facilities on a sustained and continuing basis.
Appears in 1 contract
Post-Closing Earn-Out. (a1) For (i) the period commencing the date after the Closing Date and ending April 24, 1999 ("Initial Fiscal Period"), (ii) for each of Buyer's next two four (24) fiscal years following the Initial Fiscal Period, and (iii) the period commencing April 2927, 2001 2003 and ending on the date that is three five (35) years after the Closing Date (such periods individually an "Annual Earn-out Period"), the Stockholders (as a group) Stockholder shall be entitled to receive from the Buyer thirty-three ten percent (3310%) of the annual Adjusted EBITDA Gross Profit (as defined herein) of the Company for any Annual Earn-out Period, on the specific terms and conditions set forth in this Section 1.7 (such payments the "Earn-out"). Any Earn-out due shall be payable in cash within ninety(90thirty (30) days after the last day of the respective Annual Earn-out Period Period, and shall be payable, at the option accompanied by a detailed computation of Buyer, in cash or in voting common stock (NASDAQ-WORK) of the Buyer (any such common stock the "Earn-out Stock"). Earn-out Stock will not be registered under the Securities Act of 1933 ("Securities Act") and the Stockholders will have no registration or other rights that would obligate Buyer to cause the Earn-out Stock certified by a financial officer of Workflow as being true, complete and correct and prepared from the books and records of the Company. Subject to be registered under the Securities Act. For purposes confidentiality requirements of valuing Section 9.2 hereof, Stockholder or a certified public accountant designated by him may by advance appointment during business hours inspect the books and records of the Company relevant to computation of the Earn-out Stock under this Section 1.7, amount to confirm the Stockholders reported Earn-out amount. Such inspection shall be entitled to receive at Stockholder's expense; provided, however, that if as a result of such number inspection it is finally determined that the amount of shares of common stock of Buyer ("Workflow Common Stock") as is equal to the Earn-out due divided by the average of the closing sales prices of the Workflow Common Stock on the NASDAQ National Market System to be properly paid to Stockholder is at least five (or any other automated quotation system of a registered securities association or stock exchange on which Workflow Common Stock is then traded5%) for the thirty (30) trading days prior to the day on which the Earn-out is due.
(b) Adjusted EBITDA for any Annual Earn-out Period shall mean the Company's earnings before interest, taxes, depreciation and amortization, as adjusted to reflect add-backs of one time, non-recurring costs incurred percent greater than that originally reported by the Company, as specifically reasonably agreed to by the Company and the Stockholders and reflected on the Earn-out Statements (as defined below) ("Add-Backs"). In determining Adjusted EBITDA, no effect then such inspection shall be given at the expense of the Company.
(2) Gross Profit for any period shall mean the amount of the Company's "Net Sales" less "Cost of Goods Sold," in each case on an unconsolidated basis and without giving effect to the results of operations of any direct or indirect parent or subsidiary of the Company. Buyer "Net Sales" for any period means the invoiced amount of goods sold by the Company during such period to the Earn-out Accounts (as defined below), less actual trade discounts, returns, artwork to the extent not paid by customers, and freight to the extent not paid by customers and a reserve for bad debts in the amount of one and eight/tenths percent (1.8%, referred to herein, as the "Reserve Percentage") of the foregoing amount. In each Annual Earn-out period after the first, the Net Sales amount, as computed in accordance with the preceding sentence, shall prepare be (x) adjusted upward, on a statement of Adjusted EBITDA dollar for each dollar basis, to the extent the actual bad debt experience for the prior Annual Earn-out period was more favorable to the Company than the Reserve Percentage and (y) adjusted downward, on a dollar for dollar basis, to the extent the actual bad debt experience for the prior Annual Earn-out period was less favorable to the Company than the Reserve Percentage. For the final Annual Earn-out Period, including in addition to the Add-Backs (collectively, "adjustment to Net Sales for such final Annual Earn-out Statements"). Each Period specified in the preceding sentence with respect to the actual bad debt experience for the Annual Earn-out Statement shall be delivered Period just prior to the Stockholders' Representative no later than ninety (90final Annual Earn-out Period, there will be a similar adjustment and payment, as specified in the preceding sentence, with respect to the actual bad debt experience for the final Annual Earn-out Period, within nine(9) days after months of completion of the last day of each final Annual Earn-out Period. The Stockholders' Representative shall have thirty (30) days from the receipt By way of any Earn-out Statement to notify the Buyer if it disputes such Earn-out Statement. If the Stockholders' Representative has delivered notice of such a dispute within such thirty (30) day period, then Buyer and the Stockholders' Representative shall meet to discuss resolution of such dispute. If within ten (10) business days thereafter, the Buyer and the Stockholders' Representative are not able to resolve such dispute, then the Independent Accountant shall be appointed to resolve such dispute. The Independent Accountant shall review the Company's books and records and the Earn-out Statements (and related information including all supporting work papers and other work product which shall be made available in Santa Ana, California) to determine the amountexample, if any, of in the Earn-out. The Independent Accountant shall be directed to consider all agreements, contracts, commitments or other documents (or summaries thereof) that it determines should be considered in accordance with GAAP and the terms of this Agreement to make the determination of the Earn-out. The Independent Accountant shall make its determination of the Earn-out, if any, within thirty (30) days of its selection. The determination of the Independent Accountant shall be final and binding on the parties hereto. If there is a determination that the Stockholders are owed an Earn-out in excess of that paid or stated by Buyer for any particular first Annual Earn-out Period, Buyer shall immediately pay the difference between actual bad debt experience reflected 1.5% of Net Sales(rather than 1.8%), and Net Sales for the first Annual Earn-out previously paid and Period were $10,000,000, then the differential of 0.3% times $10,000,000 (computed to $30,000) would be added to the calculation of Net Sales for the second Annual Earn-out owed to Period. By way of another example, if in the Stockholders. If there is a determination that the Buyer has paid an Earn-out in excess of that which is due to the Stockholders for any particular first Annual Earn-out Period, then the Stockholders shall immediately refund such excess to actual bad debt experience reflected 2.0% of Net Sales(rather than 1.8%), and Net Sales for the Buyer. The costs of the Independent Accountant shall be borne by the party (either Buyer or the Stockholders as a group) whose determination of the Earn-out was further from the determination of the Independent Accountant, or equally by Buyer and the Stockholders as a group in the event that the determination by the Independent Accountant is equidistant between the determination of the Earn-out by the Buyer and Stockholders, respectively.
(c) To the extent that the Company has a negative Adjusted EBITDA during any first Annual Earn-out Period were $10,000,000, then the differential of 0.2% times $10,000,000 (such amount an "Adjusted EBITDA Loss"), computed to $20,000) would be subtracted from the Adjusted EBITDA Loss shall be carried forward to calculation of Net Sales for the subsequent second Annual Earn-out Period(s) and aggregated with the Adjusted EBITDA (or Adjusted EBITDA Loss) for such subsequent Annual Period. "Earn-out Period(sAccounts" means (i) for purposes those accounts of determining the Earn-outCompany existing on the date hereof as identified on Schedule 1.7(b) ("Existing Accounts"), if any(ii) those accounts of the Company generated from and after the date hereof by the Company's own sales staff ("New Generated Accounts"), due for such subsequent Annual and (iii) those other accounts actually and specifically assigned to or referred to the Company by Workflow or its subsidiaries from and after the Closing Date ("New Assigned Accounts"). The Earn-out Period(s). All Adjusted EBITDA Losses Accounts shall continue to be carried forward on an annual basis until such time as Adjusted EBITDA is fully offset exclude accounts of businesses or companies acquired by the total amount of the Adjusted EBITDA Losses. Any Adjusted EBITDA Losses will not effect prior payments of Earn-outs for Annual Earn-out Periods in which the Company had a positive Adjusted EBITDA.
(d) In the event thatWorkflow, after the date of this AgreementBuyer, the Company is merged (or otherwise consolidated) into Buyer or any direct or indirect subsidiary of Buyer (any such entity a "Merger Affiliate") such that the Company is not the surviving corporation under applicable law, the Earn-out shall only be payable with respect to the business and operations conducted by the Company as of the date of this Agreement and without reference to the business and operations of the Merger Affiliate. For purposes of calculating the Earn-out payable under this Section 1.7 after a merger or other consolidation by the Company and a Merger Affiliate, the Buyer shall cause such Merger Affiliate to (i) conduct the Company's former business and operations as a division of the Merger Affiliate ("Company Division") and (ii) maintain such financial reporting systems as are necessary to accurately calculate the Adjusted EBITDA (or Adjusted EBITDA Losses) of the Company Division. Without in any way limiting Buyer's rights to enter into a transaction with a Merger Affiliate, Buyer acknowledges that, based on the Buyer's and the Company's existing operations, it is intended that all products sold or revenue generated from the Company's operations in Santa Ana, California will be given full effect when determining Adjusted EBITDA of the Company pursuant to this Section 1.7.
(e) Except as otherwise expressly agreed to by Buyer and the Company, the Earn-out shall only be payable with respect to the business and operations currently conducted by the Company (or by the Company Division) and without reference to any other entity hereafter merged into or otherwise consolidated with the Company. In the event that the Buyer causes any entity to merge or otherwise consolidate into the Company such that the Company is the surviving corporation under applicable law, the Company shall maintain such financial reporting systems as are necessary to accurately calculate the Adjusted EBITDA (or Adjusted EBITDA Losses) of the Company (or the Company Division) without taking into account the results of any other operations of the Company or any such of their subsidiaries and any accounts (other acquired than Existing Accounts or merged entity.
(fNew Generated Accounts) Notwithstanding anything which in this Section 1.7 the discretion of Workflow and its subsidiaries are not actually and specifically assigned to the contrary, Buyer shall have Company. "Cost of Goods Sold" for any period means the right cost of goods sold which are allocable to reduce any amounts otherwise payable Net Sales as an Earn-out by the amount of any indemnification obligations of the Stockholders under Article 8.
(g) Notwithstanding anything determined in this Section 1.7 to the contrary, during the period from the Closing Date through the date which is three (3) years after the Closing Date, neither a manner consistent with the Company, Buyer or any Merger Affiliate (in the case 's historical method of a transaction referred to in Section 1.7(d) above), shall dismantle, transfer or sell the business or assets or sales organization determining Cost of the Company (or Company Division, as applicable) relevant to the generation of Adjusted EBITDA for computation of the Earn-out, Goods Sold; provided, however, that (i) transactions meeting the requirements Cost of Sections 1.7(d) Goods Sold shall not be reduced by any purchase discounts, bulk purchase discounts, special discounts or other similar incentives, other than normal payment term discounts and 1.7(e) may be implemented, (ii) the Company (or the Company Division, as applicable) may sell inventory and other assets, and replace, improve or dispose of obsolete or non-usable assets, in the ordinary course of business, (iii) all or substantially all of the assets, business or capital stock of the Company or Company Division may be sold to a bona-fide third party purchaser which assumes in writing, in favor of the Stockholders, all obligations of the Buyer under this Section 1.7 with respect to payment of the Earn-out from and after the date of such sale and (iv) the Company's business operations may be discontinued and its assets liquidated if, on a sustained and continuing basis, the Company is unable to operate profitability and it is not economically feasible to continue such business, or if there is a catastrophic event such that the Company is unable to utilize its operational facilities on a sustained and continuing basisnormal discounts off list price.
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