EARN-OUT AGREEMENT
Exhibit 10.27
This EARN-OUT AGREEMENT (“Agreement”) is entered into as of May 15, 2009, by and among
Xxxxxxxx Corporation, a California corporation (the “Company”), Xxxxx Xxxxxxxx, the sole
shareholder of the Company (“Xxxxxxxx”), and Bank of Commerce Holdings (together with any
acquisition subsidiary that may be formed for the purposes of effecting the transactions
contemplated by this Agreement, “BOCH”).
Stock Purchase Agreement; Capitalized Terms. Purchaser, Company and Xxxxxxxx are parties
to an Stock Purchase Agreement, dated May 15, 2009 (the “Stock Purchase Agreement”).
Capitalized terms used herein have the respective meanings ascribed thereto in the Stock Purchase
Agreement unless otherwise defined herein.
Earn-Out Payment. The Earn-Out Payment (“Earn-Out Payment”) shall be calculated
and paid in the manner and on the terms and conditions set forth in this Section 2.
(a) Except as otherwise specified herein, BOCH shall make annual installment payments (each,
an “Earn-Out Installment Payment”) towards the aggregate Earn-Out Payment in the event that
BOCH has Allocations (as defined below) equal to or in excess of the amounts set forth in the
following tables. Each table represents successive levels of Earn-Out Installment Payments that
Xxxxxxxx may receive depending on the future performance of the Company. Except as discussed in
Section 2(d), the Earn-Out Payment shall be the cumulative amount payable hereunder for the years
2010, 2011, and 2012.
“Allocations” shall mean BOCH’s 51% share of the annual after tax profits of the
Company.
(b) The maximum aggregate amount of the Earn-Out Payment is $1,000,000, payable over
the period described herein. The parties intend that Xxxxxxxx will be able to earn the
$1,000,000 maximum Earn-Out Payment so long as the aggregate Allocations to BOCH over the
period 2010, 2011, and 2012 cumulate to at least $1,950,000.
(c) Subject to the over-ride payments described in Section 2(e), there shall be three
(3) levels of potential Earn Out Payments, labeled as “Threshold,” “Target” and “Maximum”.
The Earn-Out Installment Payment associated with Threshold performance shall be $200,000 per
year, calculated in accordance with Table 1. The Earn-Out Installment Payment associated
with Target performance shall be $250,000 per year, calculated in accordance with Table 2.
The Earn-Out Installment Payment associated with Maximum performance shall be $333,333.33
per year, calculated in accordance with Table 3. The Tables are set out in Exhibit I
attached to this Agreement.
(d) With respect to any year, Xxxxxxxx shall be eligible to receive the highest level
of Earn-Out Installment Payment associated with the aggregate Allocations to BOCH in Tables
1, 2 and 3, net of any prior Earn-Out Installment Payments made to Xxxxxxxx. For years
after 2012, until such time as Xxxxxxxx achieves the maximum aggregate Earn-Out Payment of
$1,000,000, Xxxxxxxx shall be eligible to receive an Earn-Out Installment Payment equal to
(1) up to $200,000, if the Allocation to BOCH for such year is $500,000 or more, but less
than $625,000; (2) up to $250,000, if the Allocation to BOCH for such year is $625,000 or
more, but less than $750,000; or (3) up to $333,333, if the Allocation to BOCH for such year
is $750,000 or more. Once Xxxxxxxx receives the maximum aggregate Earn-Out Payment of
$1,000,000, no
additional Earn-Out Payments shall be made. In calculating the Cumulative Allocations
for 2010, any Allocations occurring during 2009 shall be included.
(e) If Xxxxxxxx exceeds the Table 3 Maximum Target in any year, there shall be an
over-ride Earn-Out Payment made to Xxxxxxxx equal to 50% of each dollar by which the
Cumulative Allocations to BOCH exceed the Maximum Target; provided, however, that if
Xxxxxxxx is paid an over-ride Earn-Out Payment with respect to any Cumulative Allocation, he
cannot be paid in the following year with respect to the same Cumulative Allocation amount.
An over-ride Earn-Out Payment will be available for performance exceeding the 2009 Maximum
Target. An illustration of the operation of the over-ride Earn-Out Payment is set out in
Exhibit II attached to this Agreement.
(f) For purposes of all calculations of Allocations under this Agreement, BOCH’s Chief
Financial Officer shall prepare a statement of each such calculation promptly after the end
of each period for which Earn-Out Payments can be earned (each, an “Earn-Out
Period”), but in no event later than sixty (60) days following the end of the relevant
Earn-Out Period (subject to the completion of the audit of BOCH’s financial statements by
its outside auditor). Copies of BOCH’s computation of Allocations shall be submitted in
writing to Xxxxxxxx by BOCH and, unless Xxxxxxxx notifies BOCH within forty-five (45) days
after receipt of such computation that he objects to such computation of Allocations or
Cumulative Allocations, as the case may be, the computation shall be binding and conclusive
for the purposes of this Agreement. Xxxxxxxx shall have access to the books and records of
BOCH during regular business hours to verify the computation of Allocations made by BOCH.
(g) If Xxxxxxxx notifies BOCH in writing within forty-five (45) days after receipt of
BOCH’s computation that it objects to the computation of Allocations set forth therein,
Xxxxxxxx and BOCH shall negotiate in good faith to resolve the dispute during the fifteen
(15) day period following BOCH’s receipt of such notification. If such dispute is not
resolved within that period, it shall be submitted for resolution in accordance with terms
of the Stock Purchase Agreement.
(h) If no notice of objection is delivered by Xxxxxxxx, BOCH shall make any applicable
Earn-Out Installment Payment not later than three (3) business days after the earlier of the
expiration of the 45-day period for delivery of such notice of objection or the date
Xxxxxxxx notifies BOCH that the Allocation calculation is accepted without objection. If a
notice of objection is delivered by Xxxxxxxx, the Earn-Out Installment Payment will be made
three (3) business days after the date all disputed items are finally resolved.
(i) At Xxxxxxxx’x election, the initial $100,000 of Earn-Out Installment Payments shall be
made in the form of BOCH common stock (the “Stock Payment”) which shall be issued subject
to a three-year lock up agreement pursuant to which Xxxxxxxx shall not be permitted to trade such
shares. The number of shares to be issued in connection with the Stock Payment shall be
calculated, at the time that it is earned, by dividing the BOCH common stock trading price on the
last trading date of the preceding calendar year into $100,000. Any resulting fraction share shall
be rounded upward to the nearest whole share. The $100,000 of the Allocation represented by the
Stock Payment, which would be otherwise payable to Xxxxxxxx as an Earn-Out Installment Payment
hereunder, shall be paid to BOCH.
Covenants. During the period when Earn-Out Payments may be earned (the “Term”), the
parties shall cause the Company to operate its business in a manner consistent with the operations
of Company prior to the formation of the Company, except as augmented by the capital additions
provided under the Stock Purchase Agreement. In addition to, and not in limitation of, the
foregoing, during the Term, the Company shall not:
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sell any of its assets outside the Ordinary Course of Business;
merge or consolidate with any other Person;
issue any shares of capital stock to any other Person;
dissolve, liquidate or otherwise end its business;
acquire any other Person, or acquire any material assets of any other Person other than in the
Ordinary Course of Business.
merge or consolidate with any other Person;
issue any shares of capital stock to any other Person;
dissolve, liquidate or otherwise end its business;
acquire any other Person, or acquire any material assets of any other Person other than in the
Ordinary Course of Business.
Termination of Employment. In the event that the employment of Xxxxxxxx is terminated
prior to all Earn-Out Installment Payments being earned, Xxxxxxxx shall nonetheless be entitled to
receive Earn-Out Payments, if his employment is terminated (a) by the Company without Cause or if
Xxxxxxxx either resigns his employment for Good Reason (as defined in his Employment Agreement), or
(b) as the result of the Xxxxxxxx’x death or disability. This Agreement, by itself, shall not be
deemed for any purposes to be an agreement to provide continued employment or to amend the terms or
any employment agreement that may exist between Xxxxxxxx and the Company.
Miscellaneous. This Agreement constitutes an agreement solely among the parties hereto,
and is not intended to and shall not confer any rights, remedies, obligations or liabilities, legal
or equitable, including any right of employment, on any Person other than the parties hereto and
their respective successors, assigns and legal representatives, or otherwise constitute any Person
a third party beneficiary hereunder or by reason hereof. Neither party may assign its rights or
obligations under this Agreement without the express written consent of the other party. This
Agreement may be executed in one or more counterparts, each of which shall be deemed an original
agreement, but all of which together shall constitute one and the same instrument. This Agreement
may only be amended or modified in writing signed by the party against whom enforcement of such
amendment or modification is sought. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of any other laws that might
otherwise govern under principles of conflicts of laws applicable thereto. Any legal proceeding to
enforce any provision of this Agreement or arising out of this Agreement must be brought in the
federal or state courts located in the State of California, County of Shasta, and each of the
parties consents to the jurisdiction of such courts and waives any objection to venue laid therein.
Process may be served on any party anywhere in the world.
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IN WITNESS WHEREOF, the parties have caused this Earn-Out Agreement to be duly executed and
delivered as of the date first set forth above.
| COMPANY: | ||||
| Xxxxxxxx Corporation | ||||
| /s/ Xxxxx Xxxxxxxx | ||||
| Title: President and Chief Executive Officer | ||||
| XXXXXXXX: | ||||
| /s/ Xxxxx Xxxxxxxx | ||||
| BOCH: | ||||
| Bank of Commerce Holdings | ||||
| /s/ Xxxxxxx X. Xxxx | ||||
| Title: President and Chief Executive Officer |
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