Advanced Business Contracts: How to Minimize Purchase Price Disputes

©2014 Baird Holm LLP
How to Minimize
Purchase Price Disputes
Advanced Business Contracts
December 12, 2014

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jonathanwegner@bairdholm.com

Agenda
• Accounting Standards and Methods
• Key Structural Elements of Earn-Outs
• Purchase Price Allocations
• Post-Closing Purchase Price Adjustments
• Purchase Price Dispute Resolution
Provisions

How to Minimize Purchase Price Disputes:
ACCOUNTING STANDARDS
& METHODS

Accounting Standards & Methods
• GAAP, consistently applied
– Preferable Interpretations
– Exceptions to GAAP
• Cash-basis items
• Vacation/PTO
• Deferred Compensation

• Accounting Principles
– Based on interim or year-end reports?
– Most-recent v. yearend balance sheet
– Installment payments
• Tax characterization (principal v. interest)

– Common areas of dispute, timing of reviews
• Excess or obsolete inventory
• Doubtful receivables
• Returns/allowances
• Estimated liability accounts

– Usually defined by reference to financial
statements
• Monday morning quarterbacking
• The offset argument
– Changes in accounting methodologies
• Covenants and Reps to maintain consistency

• GAAP, consistently applied
– Use “consistently” consistently
• “consistently provide allowance for bad debt”
• “maintain allowance using consistent methodology”
• “maintain a consistent amount in the allowance”
– Sample Provision:
• Allowance for Loan and Lease Losses

4.2 Allowance for Loan and Lease Losses.
(a) As of the Pre-Closing Date, Seller’s ALLL shall be not less than the sum of the
Minimum ASC 450 Reserves plus the Minimum ASC 310 Reserves, determined in
accordance with this Section 4.2.
(b) Exhibit 4.2(b) to the Disclosure Statement sets forth the methodology used to
determine Seller's ALLL as of September 30, 2013, with allocations to Seller's Pass
Credits and Non-Impaired Adversely Classified Loans (collectively, the "ASC 450
Reserves") and for Seller's Impaired Loans (the "ASC 310 Reserves").
(c) Seller's "Minimum ASC 450 Reserves" as of the Pre-Closing Date shall be
equal to the sum of the Minimum ALLL for Pass Credits plus the Minimum ALLL for Non-
Impaired Adversely Classified Loans, determined as follows:

4.2 Allowance for Loan and Lease Losses (cont’d).
(i) Seller’s reserve for Seller's Pass Credits shall be not less than a sum equal to
3.1% times to aggregate dollar value of Seller's Pass Credits as of the Pre-Closing Date
(the "Minimum ALLL for Pass Credits").
(ii) The portion of Seller’s ALLL allocated to Seller's Non-Impaired Adversely
Classified Loans shall be not less than a sum equal to 11% times the aggregate dollar
value of Seller's Non-Impaired Adversely Classified Loans as of the Pre-Closing Date
(the "Minimum ALLL for Non-Impaired Adversely Classified Loans"). Seller shall not
upgrade any Non-Impaired Adversely Classified Loans from the date of this Agreement
to the Pre-Closing Date without the express written consent of Buyer. If Buyer withholds
its consent, Seller may, at Seller's option, elect to designate one or more Non-Impaired
Adversely Classified Loans as an Excluded Asset or maintain such loan's status as a
Non-Impaired Adversely Classified Loan.

4.2 Allowance for Loan and Lease Losses (cont’d).
(d) Exhibit 4.2(d) to the Disclosure Statement lists the amount of the total Seller Specific
Reserves allocated in accordance with ASC 310 to each Loan Asset subject to impairment as of the
date of this Agreement (the "Impaired Loans"). As of the date that is not fewer than 15 days prior to
the Pre-Closing Date, Seller and Buyer shall reevaluate the portion of Seller’s ALLL attributed to
each Impaired Loan and make additional reserves for any other loans that are subject to
impairment testing under Seller's loan policy (including without limitation loans with balances in
excess of $10,000.00, all classified loans, all nonaccrual loans, and any other loans required to be
tested for impairment under Seller's loan policy) and which have suffered impairment in Buyer's or
Seller's determination as of such date (the "Additional Impaired Loans"). If Seller disagrees with the
reserve amount Buyer believes to be required for any Additional Impaired Loan or if Seller believes
that all or a portion of any reserve previously made by Seller accordance with ASC 310 to an
Impaired Loan should be reversed, Seller may request Buyer's consent to reverse all or a portion of
the amount of such reserve. If Buyer denies Seller's request, Seller may, at Seller's option, elect to
designate such Impaired Loan or Additional Impaired Loan as an Excluded Asset or maintain the
level of Specific Reserve allocable to such loan. Seller and Buyer shall update Exhibit 4.2(d) to the
Disclosure Statement as of the Pre-Closing Date to reflect the total agreed-upon reserves for all
Impaired Loans and Additional Impaired Loans as of the Pre-Closing Date (the "Minimum ASC 310
Reserves").

EARN-OUT PROVISIONS

Earn-Out Provisions
• Earn Outs:
– Deal consideration payable to sellers that is
contingent upon achievement of performance
milestones or other metrics tied to future
performance of a business.

Earn-Out Provisions
• Purpose
– Bridge reasonable valuation gap
– Incentivize smooth transition
– Realize full value of business
– Reward future growth

Earn-Out Provisions
• Commonly used for deals involving:
– Early stage companies
– New technology and innovations
– Turnarounds
– Private company deals
– Management incentivization

Earn-Out Provisions
• Negative Aspects
– Buyer distraction / Seller overemphasis
– Limitations on buyer/seller control
• Restrictions on business operations
• Delayed integration
– Complex terms, protracted negotiation
– Increases risk of post-closing dispute

Earn-Out Provisions
Source: M&A Market Trends Subcommittee, Mergers & Acquisitions Committee,
http://apps.americanbar.org/dch/committee.cfm?com=CL560003

Earn-Out Provisions
Duration of
Earn-Out
Provisions

Earn-Out Provisions
• Timing Considerations
– Shorter windows usually preferable
• Lower credit and market risks for Sellers
• Expedite Buyer integration
• Elimination restrictions on operations imposed by
the Earn-Out structure
– However, longer windows may be necessary
to achieve goals
• Buyer defers earn-out payment (time value)

Earn-Out Provisions
• Accounting Issues: Method
– Buyer’s GAAP v. Seller’s GAAP
– Changes to principles v. methods
• Inventory
• Bad debt

Earn-Out Provisions
• Accounting Issues: Metrics
– Revenues/Net Sales
– Gross Margin
– EBITDA
– Net Profits

Earn-Out Provisions
• Accounting Issues: Metrics
– Common Seller Exclusions
• Overhead costs
• Capital improvements
• Amortization of goodwill from acquisition
• Interest charges
• Extraordinary items
• Management fees
• Affiliate transactions

Earn-Out Provisions
• Accounting Issues: Net Sales Sample
“Net Sales” for any period means gross sales of the Products billed and shipped by
COMPANY or its Affiliates, Licensees, or permitted assignees, less allowances and
discounts actually given, fees or commissions to independent salesmen or independent
sales representatives, returns, invoices written off as uncollectible (except if and insofar
as such invoices are subsequently collected), billed taxes and customs duties paid by
COMPANY or its Affiliates, Licensees, or permitted assignees, costs of insurance and
transportation, freight and transit insurance and tax, and shall not include samples or
demonstration materials or any sale to COMPANY employees or employees of its
Affiliates, Licensees, independent sales representatives or permitted assignees for any
reason other than resale. The term “Net Sales” shall not include: (i) sales directly or
indirectly between the Parties, (ii) sales by independent distributors (but shall include
sales to such independent distributors), or (iii) sales between COMPANY and its
Affiliates, Licensees or permitted assignees.

Earn-Out Provisions
• Accounting Issues: EBITDA Sample
“EBITDA” of the Acquired Companies for any fiscal year shall
mean their consolidated earnings from operations before interest,
taxes, depreciation and amortization, calculated as if they were
being operated as a single separate and independent corporation.
EBITDA shall be determined in accordance with U.S. generally
accepted accounting principles (GAAP) as consistently applied by
Seller as determined by the firm of independent certified public
accountants engaged by Buyer for purposes of its own audit
(“Buyer’s Accountants”). In determining such EBITDA:

Earn-Out Provisions
• Accounting Issues: EBITDA Sample (cont’d)
(a) EBITDA shall be computed without regard to “extraordinary items” of gain or loss as that term
shall be defined in GAAP;
(b) EBITDA shall not include any gains, losses or profits realized from the sale of any assets other
than in the ordinary course of business;
(c) No deduction shall be made for any management fees, general overhead expenses or other
intercompany charges, of whatever kind or nature, charged by Buyer to the Acquired Companies,
except that Buyer may charge interest on any loans or advances made by Buyer to the Acquired
Companies in connection with its business operations at a rate of 3.25%;
(d) No deduction shall be made for legal or accounting fees and expenses arising out of this
Agreement or the Purchase Agreement; and
(e) The purchase and sales prices of goods and services sold by the Acquired Companies to Buyer
or its affiliates or purchased by the Acquired Companies from Buyer or its affiliates shall be adjusted
to reflect the amounts that the Acquired Companies would have realized or paid if dealing with an
independent party in an arm’s-length commercial transaction.

Earn-Out Provisions
• Non-Financial Metrics
– Regulatory Approvals
– Strategic Goals
• Roll-up strategy
• New Customers
– Project Milestones
• Product Launch
• Number of Products Sold

Earn-Out Provisions
• Payment Structure
– All-or-Nothing v. Graduated
• Graduated is more common
• All-or-Nothing incentivizes Buyer to miss target
– Right to offset indemnification
– Valuation of Non-Cash Consideration

Earn-Out Provisions
• Payment Structure: Stock Valuation
The aggregate number of Parent Shares issuable pursuant to a Share Earnout
Payment shall be determined by taking 50% of the Share Earnout Payment and
dividing that amount by an amount equal to 95% of the volume weighted-average
closing price per Parent Share as quoted on the NASDAQ Capital Market for the 30
trading days immediately prior to the end of the applicable EBITDA Calculation
Period. All Parent Shares issued as Share Earnout Payments shall be subject to
Lock-Up Agreements, provided that any Parent Shares issued as Share Earnout
Payments shall not be restricted for a period in excess of six (6) months. An example
of how Earnout Payments will be determined is attached hereto as Exhibit A .

Earn-Out Provisions
• Information Rights
– Quarterly, Semi- and Annual Reports
• Sales Reports
• Financial Statements
• Security
– Escrow funds
– Security interest in target company

Earn-Out Provisions
Buyer Covenants: Post-Closing Operation of Business

Earn-Out Provisions
Fiduciary Disclaimer Provision

Earn-Out Provisions
• Implied covenant of good faith and fair
dealing
– Horizon Holdings, L.L.C. v. Genmar Holdings,
Inc., et al., 244 F. Supp. 2d 1250 (D. Kan.
Feb. 11, 2003)

Earn-Out Provisions
• Pro-Buyer Fiduciary Disclaimer
The Seller acknowledges that (i) upon the closing of the transactions contemplated
by the Purchase Agreement and except as expressly provided to the contrary in this
Agreement, Buyer has the right to operate the Acquired Companies and Buyer’s other
businesses in any way that Buyer deems appropriate in Buyer’s sole discretion, (ii)
Buyer has no obligation to operate the Acquired Companies in order to achieve any
Earnout Amount or to maximize the amount of any Earnout Amount, (iii) Buyer is
under no obligation to continue to manufacture the Acquired Companies' product
line(s), (iv) the Earnout Amount is speculative and is subject to numerous factors
outside the control of Buyer, (v) there is no assurance that Seller will receive any
Earnout Amount and Buyer has not promised nor projected any Earnout Amount, (vi)
Buyer owes no fiduciary duty or express or implied duty to the Seller, including an
implied duty of good faith and fair dealing, and (vii) the parties solely intend the
express provisions of this Agreement to govern their contractual relationship. Seller
hereby waives any fiduciary duty or express or implied duty of Buyer to the Seller,
including an implied duty of good faith and fair dealing.

Earn-Out Provisions
• Fiduciary disclaimers commonly avoided:
– Avoid demands for extensive negative
covenants
– In the event of litigation, seller may challenge
enforceability of waivers

Earn-Out Provisions
• Pro-Seller Restrictive Covenants
During the Earnout Period, Buyer agrees to act in good faith in the
operation of the business of the Company as it relates to the
achievement of the EBITDA Targets and the Parties agree that,
except with the written consent of Seller, neither Buyer nor the
Company, directly or indirectly shall cause or permit to be taken
any action or engage in any transaction or series of related
transactions, or enter into an agreement to do the same, with the
primary purpose of reducing the Company’s EBITDA in order to
reduce or eliminate any obligations to make an Earnout Payment
hereunder, including, without limitation:

Earn-Out Provisions
• Pro-Seller Restrictive Covenants (cont’d)
(i) materially changing the nature of the business,
(ii) changing the Company’s methods of accounting, billing and
collection practices,
(iii) making intercompany charges to the Company which reduce
the Company EBITDA other than on arms-length terms not
more costly than could be obtained from third parties, or
(iv) failing to provide the Company with sufficient capital and
bonding support.

Earn-Out Provisions
Buyer shall not directly or indirectly restrict or preclude the
Company from pursuing business opportunities directly related to
the Company’s business or the Company’s ability to deliver its
products and services in a timely fashion in the ordinary course of
business consistent with past practice.

Earn-Out Provisions
In the event that, during the Earnout Period, there is consummated a
transaction or series of related transactions pursuant to which (A) all or
substantially all of the assets used in the business of the Company are sold or
transferred to a non-affiliate of Buyer, or (B) Buyer ceases to hold, directly or
indirectly, a majority of the equity interests of the Company (whether by merger,
consolidation, acquisition of equity interests or all or substantially all of the
assets of the Company or otherwise), proper provision shall be made so that
the successors and assigns of the Company or Buyer, as the case may be,
assume the obligations set forth in Sections 2.4 and 2.5 and agree to be bound
by the terms hereof to the same extent as Buyer.

Earn-Out Provisions
Acceleration and Offset Rights

PURCHASE PRICE
ALLOCATIONS

Purchase Price Allocation
• Tax effects of acquisitions
– Section 1060 // Form 8594
– Section 338(h)(10) deemed asset sale
– Section 368 tax-deferred reorganizations

• Asset Allocation
– Arm’s length agreement between buyer and
seller generally binding on parties IRS
– Form 8594 requires “check the box” re:
mutual agreement on allocation

• Seven Classes of Assets
– Class I: Cash
– Class II: Publicly traded securities
– Class III: Accounts receivable, debts
– Class IV: Inventory
– Class V: Fixed assets
– Class VI: Specific intangibles
– Class VII: Goodwill

• Buyer Cost/Benefit of Allocations
– Faster write-offs delay income recognition
• Inventory generally fastest
• Depreciable fixed assets (3-7 years)
• Real estate improvements (15-39 years)
– Land and subsidiary stock are not depreciable
• Goodwill and other intangibles (15 years)
– Cost Segregation of short-life property
• Floor coverings, wall partitions, signs, window
treatments, appliances

• Seller Cost/Benefit of Allocations
– Capital gains vs. ordinary income recapture
– Exceptions
• Installment sale treatment for seller-financed deals
(capital assets only)
• 1031 tax-free exchange treatment
– Goodwill (capital gain for amortization taken
on purchased goodwill)

• Business Combinations (ASC 805)
– Recognition criteria for identifiable intangible
assets (e.g., contractual or legal right)
• Valuation of Intangibles
– Cost approach
– Market approach
– Income approach
• Remaining Useful Life

• Business Combinations (ASC 805)
– Categorize intangibles by type
– Valuation approaches: income, market, cost
• Ex.: Royalty relief, excess earnings, cost to create,
– Determine remaining useful life
• Definite: Specific estimate with support such as
contract term or utilization of attrition rate
(customer list/relationships)
• Indefinite: Subject to impairment testing in
subsequent reporting periods

PURCHASE PRICE
ADJUSTMENTS

Why and When These
Matter Most
True-Ups
Delays:
•Regulatory Approvals
•Consents
•Financing
•Shareholder Approvals
•Securities Registration

Purchase Price Adjustments
• Benefits of Addressing in LOI
– Back of the napkin // I-Banker Driven Terms
– Detailed LOI
• Fixed Price: Purchase price expressed as a simple
statement of a fixed dollar amount, subject to
working capital or total equity adjustments.
• Formula Price:
– Purchase price includes an Earn-Out
– Non-cash consideration
– Escrow holdback for true-ups or post-closing liabilities

• Benefits of Addressing in LOI
– Money left on the table (working capital)
– Buyer gets benefit of agreed-upon balance
sheet
– Allocation of profits/economic risks in interim
periods
• Caveat: MAC Clause Protection

• Definitions: Net Working Capital
“Net Working Capital” means, as of a specified date and calculated in accordance with
GAAP and the Accounting Principles by the Company prior to the Closing: (i) the sum of
the dollar amounts of the following current asset accounts of the Company: cash and
cash equivalents, accounts receivable, inventories, other current assets and prepaid
expenses, less (ii) the sum of the dollar amounts of the following current liability
accounts of the Company: accounts payable (which shall include the face amount of any
checks of the Company outstanding as of the Closing) and accrued expenses. In no
event will Net Working Capital include any portion of any Debt or Transaction Expenses
(or any “prepaid” or other asset created as the result of the payment of a Transaction
Expense).

Exclusion of tax items
from Net Working
Capital Calculation

• Definitions: Current Assets/Liabilities
The term “Current Assets” shall mean the sum of the consolidated balances of cash,
Company Accounts Receivable, prepaid expenses and any other current asset, other
than Inventory (i.e., assets which will be amortized or expensed or received in cash
within one year from the Closing Date). For the avoidance of doubt, Current Assets shall
not include deferred tax assets.
The term “Current Liabilities” shall mean the sum of the consolidated balances of
accounts payable, accrued payrolls, accrued payroll taxes, accrued health care
benefits and other current liabilities (i.e., liabilities which will be included in income or
paid in cash within one year from the Closing Date). For the avoidance of doubt,
Current Liabilities shall not include deferred tax liabilities.

Purchase Price Adjustment

• Estimated NWC (No Collar)
Not less than four (4) Business Days prior to the Closing Date, the Seller and the
Shareholders shall provide Buyer with a good faith estimate (subject to Buyer's review
and reasonable approval) of Net Working Capital as of Closing (“Estimated Net
Working Capital”). For avoidance of doubt, consistent with the definition of Current
Assets, the Estimated Net Working Capital will not contain any LIFO inventory reserve.
The Estimated Payment shall be reduced by the amount, if any, by which the Target Net
Working Capital exceeds the Estimated Net Working Capital, or increased by the
amount, if any, by which the Estimated Net Working Capital exceeds the Target Net
Working Capital (such reduction or increase, the “Estimated Net Working Capital
Adjustment”).

• Estimated NWC ($200,000 Collar)
For purposes of this Agreement, the "Purchase Price" means an amount equal to:
(i) $67,000,000 (the "Base Purchase Price"), plus (ii) Cash as of immediately prior to the
Closing ("Closing Cash"), minus (iii) Indebtedness of Parent and Subsidiary as of
immediately prior to the Closing ("Closing Indebtedness"), plus (iv) the amount, if any, by
which the Net Working Capital (as defined below) exceeds the Baseline Working Capital
Amount (as defined below) (but with it being understood that if Net Working Capital
exceeds the Baseline Working Capital Amount by an amount that is less than or equal to
$200,000, then Net Working Capital shall be deemed to be the Baseline Working Capital
Amount and the amount of this clause (iv) shall be zero), minus (v) the amount, if any, by
which the Net Working Capital is less than the Baseline Working Capital amount (but
with it being understood that if Net Working Capital is less than the Baseline Working
Capital Amount by an amount that is less than or equal to $200,000, then Net Working
Capital shall be deemed to be the Baseline Working Capital Amount and the amount of
this clause (v) shall be zero), minus (vi) the Transaction Expenses.

Preparation of Closing Balance Sheet

• Closing Balance Sheet Provision
Within sixty (60) days after the Closing Date, Buyer shall deliver to the Seller a statement
(“Closing Date Statement”) setting forth a calculation of Net Working Capital as of the
Closing. In making its calculation of Net Working Capital on the Closing Date Statement,
Buyer will have the right to reserve against or exclude from Current Assets any accounts
receivable and inventory that have not been collected or that otherwise do not meet the
requirements of Section 3.2(i)(iv) or Section 3.2(l), as applicable, at the time Buyer
delivers its Closing Date Statement; provided that invoices aged less than 180 days
when Buyer delivers its Closing Date Statement will not be excluded unless and to the
extent there are other factors demonstrating their uncollectibility. For avoidance of
doubt, consistent with the definition of Current Assets, the Actual Net Working Capital
will not contain any LIFO inventory reserve.

Purchase Price Adjustment: Escrows

• True-Up Process and Escrows
– Indemnity provisions may require on their face
that Seller pay Buyer twice for the same item.
• Require language that prohibits indemnification for
items addressed in the true-up procedures and the
preparation of the closing date balance sheet.
– Caps applicable to indemnification obligations
should not affect purchase price adjustments.
• Buyer will want right to the full amount of any
indemnifiable loss exclusive of true-up items.

• True-Up Escrow Provision
Buyer shall pay to the Escrow Agent on the Closing Date via wire transfer of
immediately available funds an amount equal to Two Hundred Fifty Thousand
Dollars ($250,000.00) (the "True-Up Escrow Amount") to be held until completion
of the true up process described in Sections 4.3 and ‑ 4.4 below and distributed in
accordance with the provisions of this Agreement and the Escrow Agreement
attached to this Agreement as Exhibit B. The True-Up Escrow Amount shall be
paid by Buyer to the Escrow Agent at Closing.

Purchase Price Adjustment
• Shortfall Obligation with Optional Draw
from Indemnity Escrow
If the Estimated Purchase Price is greater than the Final Purchase Price, then within five
(5) Business Days after the Closing Statement becomes final and binding in accordance
with the terms hereof (such difference, the "Short‑Fall Amount"), (1) the Shareholders
shall jointly and severally make payment of the Short‑Fall Amount to Buyer, by wire
transfer of immediately available funds to the account(s) previously designated by Buyer
and (2) in addition to having the right to seek payment of the Short‑Fall Amount from the
Shareholders, Buyer shall have the right (but not the obligation) to obtain payment of the
Short‑Fall Amount from the Indemnity Escrow Account pursuant to the terms and
conditions of this Agreement and the Escrow Agreement and the Shareholders'
Representatives shall promptly (but in any event within ten (10) Business Days after
receipt of written notice) cause the Shareholders to replenish the Indemnity Escrow
Account by the amount of such payment.

DISPUTE RESOLUTION
PROVISIONS

Dispute Resolution Provisions
• Aligning Incentives
– Provisions should be designed to incentivize
cooperation and reasonable negotiations.
– Cost allocation is common method to
incentivize good faith.

• Binding Arbitration Provision with
Proportionate Fee Allocation
All unresolved disputes shall be submitted to a third party arbitrator reasonably
acceptable to Buyer and Seller (the “Arbitrator”), who shall be engaged to provide a final,
binding and conclusive resolution of all such unresolved disputes within thirty (30)
Business Days after such engagement. The Arbitrator shall act as an independent
arbitrator to determine only those issues that remain in dispute. Upon final resolution of
all disputed items, the Arbitrator shall issue a report showing its final calculation of such
disputed items. The determination of the Arbitrator shall be final, binding and conclusive
on Seller and Buyer and each of their respective Affiliates, successors and assigns, and
not subject to collateral attack for any reason (other than manifest error on its face or
fraud), and the fees and expenses of the Arbitrator shall be borne by Seller and Buyer in
proportion to the amounts by which their proposals differed from the Arbitrator's final
determination.

• Scope of Arbitrator’s Authority
In no event shall the Arbitrator assign a value to any item greater than the greatest
value for such item claimed by either Buyer or Seller, as applicable, or less than the
small value for such item claimed by any such Party and the Arbitrator shall be required
to make its determination in accordance with the following: (i) in accordance with GAAP
and applying the Accounting Principles and the definition of Net Working Capital in
Section 10.1(gg) ; (ii) based solely on the presentations by Seller and Buyer and not by
independent review; (iii) bound by the principles set forth in this Section 2.2 (without
regard to principles of equity); and (iv) only determining the items in dispute and taking
into account at face value the items in the Closing Date Statement that were not
specifically object to in the Objection Notice or that were otherwise resolved by Buyer
and Seller in accordance with this Section 2.2(c). Any documents submitted by either
Buyer or Seller to the Arbitrator, either unilaterally or at the Arbitrator’s request, shall be
simultaneously submitted to the other Party. In connection with the resolution of any
dispute, Seller and Buyer shall each pay its own fees and expenses, including without
limitation, legal, accounting and consultant fees and expenses.

• Baseball Arbitration
If issues in dispute are submitted to the Accountants for resolution, (i) each party will submit
to the Accountant a proposed final Purchase Price, (ii) each party will furnish to the
Accountants such workpapers and other documents and information relating to the disputed
issues as the Accountants may request and are available to that party (or its independent
public accountants), and will be afforded the opportunity to present to the Accountants any
material relating to the determination and to discuss the determination with the Accountants;
(iii) the Accountants will select the final Purchase Price proposed by either Buyer or the
Shareholders' Representatives (and shall not be permitted to select any other amount), (iv)
the Accountants determination of the final Purchase Price shall be based solely on the
materials submitted by Buyer, on the one hand, and the Shareholders' Representative, on
the other hand, which are in accordance with the guidelines and procedures (including
definitions) set forth in this Agreement (i.e., not on the basis of an independent review), (v)
the determination by the Accountants, as set forth in a notice delivered to both parties by the
Accountants, will be binding and conclusive on the parties; and (vi) the fees and expenses of
the Accountants for such determination shall be borne by the party whose final Purchase
Price is not selected by the Accountant.

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