¶2205	Purchase Price Adjustment 
Sample acquisition agreements 2201 (pro-buyer stock purchase), 2202 (pro-seller stock purchase), and 2203 (neutral stock purchase) assume a fixed purchase price. This sample acquisition agreement 2205 (purchase price adjustment) contains additional provisions for use if there is to be a post-closing purchase price adjustment based on T’s (a) cash balance, (b) outstanding indebtedness (including T’s unpaid transaction expenses and, if agreed by the parties, accrued Taxes), and (c) net working capital at closing. This form can be adapted for other post-closing purchase price adjustments (e.g., an adjustment based on T’s net book value as of the closing or a contingent earn-out based on earnings for a specified period after the closing).
In the event Parties to a transaction elect to include these purchase price adjustment provisions, they should take care to review each element of the adjustment carefully to ensure that it reflects the intended economic agreement (discussed in greater detail in footnotes below).
I. Add (or substitute) the following definitions for corresponding definitions contained in §1 of sample acquisition agreement 2201 (the pro-buyer stock purchase agreement), sample acquisition agreement 2202 (the pro-seller stock purchase agreement), or sample acquisition agreement 2203 (the neutral stock purchase agreement) (and retain without change definitions in §1 not listed below). 
“Accounting Principles” [Pro-Buyer alternative] [means GAAP applied in a manner consistent with the Audited Financial Statements (it being understood that, with respect to any calculation herein that is to be made in accordance with GAAP, if any item in the Audited Financial Statements was not applied in accordance with GAAP, the “Accounting Principles” shall require that such calculation herein be made in accordance with GAAP).] [Pro-Seller alternative] [means (i) the accounting methods, policies, procedures, assumptions, or estimation methods with respect to financial statements, their classification or presentation or otherwise (including with respect to the nature of accounts, level of reserves, or level of accruals) that are specified in the calculation of the Target Net Working Capital as set forth on the Working Capital Schedule, (ii) to the extent not inconsistent with the foregoing clause (i), the accounting methods, policies, procedures, assumptions, or estimation methods with respect to financial statements, their classification or presentation or otherwise (including with respect to the nature of accounts, level of reserves, or level of accruals) adopted in connection with the Most Recent Balance Sheet, and (iii) to the extent not inconsistent with the foregoing clauses (i) or (ii), GAAP.]
“Arbiter” has the meaning set forth in §2(e)(iv) below.
“Audited Financial Statements” means the Financial Statements for the Most Recent Fiscal Year End described in clause (i) of §4(g) below.
“Base Purchase Price” means an amount equal to $[__________].
“Calculation Time” means 11:59 p.m. (________, ________ time) on the day immediately prior to the Closing Date.
“Cash” means, as of any applicable time of determination, Target’s and its Subsidiaries’ actual consolidated cash (bank) balances, which shall be (i) reduced by any cash in reserve accounts, escrowed cash, custodial cash, and cash otherwise subject to any legal or contractual restriction on the ability to freely transfer or use such cash for any lawful purpose, bank overdrafts, and outstanding uncleared checks, drafts, and wire transfers and (ii) adjusted for any other proper reconciling items[, in each case, determined in accordance with GAAP]. For the avoidance of doubt, Cash may be a positive or negative number. 
“Closing Cash Amount” means the aggregate amount of all Cash of Target and its Subsidiaries as of the Calculation Time.
“Closing Indebtedness” means the aggregate amount of Indebtedness of Target and its Subsidiaries as of immediately prior to the Closing.
“Closing Net Working Capital” means the Net Working Capital of Target and its Subsidiaries as of the Calculation Time.
“Estimated Closing Cash Amount” means an amount equal to the Closing Cash Amount as [jointly] estimated in good faith by [Buyer and] Requisite Sellers [not less than two (2) Business Days] prior to the Closing.
“Estimated Indebtedness” means an amount equal to the Closing Indebtedness as [jointly] estimated in good faith by [Buyer and] Requisite Sellers [not less than two (2) Business Days] prior to the Closing.
“Estimated Net Working Capital” means an amount equal to the Closing Net Working Capital as [jointly] estimated in good faith by [Buyer and] Requisite Sellers [not less than two (2) Business Days] prior to the Closing.
“Estimated Purchase Price” has the meaning set forth in §2(b).
“Indebtedness” means, as of any applicable time of determination, without duplication, the following: (i) all indebtedness for borrowed money, (ii) all Liabilities evidenced by bonds, debentures, notes, or other similar instruments or debt securities, (iii) all Liabilities under or in connection with letters of credit or bankers’ acceptances or similar items, (iv) all Liabilities for deferred purchase price of property or services (other than those trade payables incurred in the ordinary course of business) and all deferred purchase price Liabilities related to past acquisitions, whether contingent or otherwise (including any “earn-out” or similar payments or obligations at the maximum amount payable in respect thereof), (v) all Liabilities arising from cash/book overdrafts, (vi) all deferred rent obligations, (vii) all Liabilities under capitalized leases or leases that in accordance with GAAP are or will be required to be capitalized, (viii) all Liabilities under conditional sale or other title retention agreements, (ix) all Liabilities arising out of interest rate, currency, or other hedge agreements or other hedging arrangements, (x) all Target Expenses, (xi) all indebtedness of others guaranteed by Target or its Subsidiaries or secured by any Lien on the assets of Target or its Subsidiaries, [(xii) any amounts deposited by a customer with Target or its Subsidiaries or pre-paid by a customer to Target or its Subsidiaries in respect of goods or services to be provided by Target,] (xiii) all [accrued and] unpaid Taxes (including Tax Liabilities described in clauses (i), (ii), and (iii) of §9(a) below) of Target and its Subsidiaries for all Pre-Closing Tax Periods, [(xiv) all [accrued and] unpaid obligations of Target and its Subsidiaries for any bonuses or other incentive compensation not otherwise included in Target Expenses,] and (xv) all Liabilities classified as non-current Liabilities in accordance with GAAP, including for each of the foregoing clauses (i) through (xv), any principal, premium, accrued, and unpaid interest, related expenses, prepayment penalties, make-whole payments, commitment, breakage, and other fees, sale or liquidity participation amounts, reimbursements, indemnities, and all other amounts payable in connection therewith. 
“Net Working Capital” means the amount by which (i) the sum of Target’s and its Subsidiaries’ consolidated current assets (excluding cash, cash equivalents, and Tax assets) determined in accordance with the Accounting Principles, exceeds (ii) the sum of Target’s and its Subsidiaries’ consolidated current Liabilities (excluding Tax Liabilities) determined in accordance with the Accounting Principles; provided that (1) the combined current Liabilities of Target and its Subsidiaries shall not include any Liabilities that are included in the definition of Indebtedness, and (2) Net Working Capital shall not include any changes in assets or liabilities as a result of purchase accounting adjustments or other changes arising from or resulting as a consequence of the transactions contemplated hereby.
“Purchase Price” means an amount equal to the Base Purchase Price, minus the Closing Indebtedness, plus the Closing Cash Amount, plus the amount (if any) by which Closing Net Working Capital is greater than the Target Net Working Capital, minus the amount (if any) by which Closing Net Working Capital is less than the Target Net Working Capital, in each case as finally determined pursuant to §2(e) below.
“Target Expenses” means (without duplication), (i) the aggregate amount payable by, or Liabilities of, Target and its Subsidiaries to outside legal counsel, accountants, advisors, brokers and other Persons in connection with the transactions contemplated by this Agreement or otherwise arising by consummation of the transactions contemplated hereby, and (ii) all Liabilities of Target and its Subsidiaries under or in connection with [any severance arrangements,] // [the severance arrangements set forth in the agreements listed on §4(w) of the Disclosure Schedule or any] stay bonuses, incentive bonuses, transaction bonuses, termination and change of control arrangements, and similar obligations that are owed to any Person or that will be triggered[, either automatically or with the passage of time (including in combination with any termination of employment following the Closing)], in whole or in part by the consummation of the transactions contemplated by this Agreement (including the employer’s share of any payroll Taxes attributable to such amounts and any amounts payable to offset or gross-up any Person for any excise Taxes or income Taxes related to the foregoing items).
“Target Net Working Capital” means $[_________].
II. Amend §2 of sample acquisition agreement 2201 (the pro-buyer stock purchase agreement), sample acquisition agreement 2202 (the pro-seller stock purchase agreement), and sample acquisition agreement 2203 (the neutral stock purchase agreement) to read as set forth below. The pro-buyer and neutral forms (but not the pro-seller form) contain escrow provisions in §2. The substitute §2 set forth below does not contain such escrow provisions. Hence, when the substitute §2 set forth below is used in conjunction with the pro-buyer and neutral forms, the escrow language should be added. §2(c) of pro-seller sample acquisition agreement 2202 (providing for a net cash payment to Sellers) is not necessary since Sellers receive the benefit of earnings through the Closing by the mechanism of the purchase price adjustment. 
Section 1. Purchase and Sale of Target Shares.
(a) Basic Transaction. On and subject to the terms and conditions of this Agreement, Buyer agrees to purchase from each Seller, and each Seller agrees to sell to Buyer, all of his, her, or its Target Shares for the consideration specified below in this §2.
(b) Estimated Purchase Price. For purposes of this Agreement, “Estimated Purchase Price” means an amount equal to the Base Purchase Price, minus (1) the Estimated Indebtedness, plus (2) the Estimated Cash Amount, plus (3) the amount (if any) by which the Estimated Net Working Capital is greater than the Target Net Working Capital, minus (4) the amount (if any) by which the Estimated Net Working Capital is less than the Target Net Working Capital[, minus (5) the Escrow Amount].  Buyer agrees to pay to Sellers at the Closing the Estimated Purchase Price by delivery of (i) its promissory notes (the ‘‘Buyer Notes’’) in the form of Exhibit A attached hereto in the aggregate principal amount of $__________ and (ii) cash for the balance of the Estimated Purchase Price payable by wire transfer or delivery of other immediately available funds. The Estimated Purchase Price shall be allocated among Sellers in proportion to their respective holdings of Target Shares as set forth in §4(b) of the Disclosure Schedule. The Estimated Purchase Price shall be subject to post-Closing adjustment as set forth below in §2(e).
(c) The Closing. The closing of the transactions contemplated by this Agreement (the ‘‘Closing’’) shall take place at the offices of __________ in __________, __________ commencing at 9:00 a.m. local time on the [second] business day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective Parties will take at the Closing itself) or such other date as Buyer and Requisite Sellers may mutually determine (the ‘‘Closing Date’’); provided, however, that the Closing Date shall be no earlier than __________, __________.
(d) Deliveries at Closing. At the Closing, (i) Sellers will deliver to Buyer the various certificates, instruments, and documents referred to in §7(a) below, (ii) Buyer will deliver to Sellers the various certificates, instruments, and documents referred to in §7(b) below, (iii) each Seller will deliver to Buyer stock certificates representing all of his, her, or its Target Shares, endorsed in blank or accompanied by duly executed assignment documents, and (iv) Buyer will deliver to each Seller the consideration specified in §2(b) above.
(e) Purchase Price Adjustment.
(i) Within [90 days] after the Closing Date, Buyer will, or will cause Target to, prepare and deliver to Sellers a closing statement (the ‘‘Closing Statement’’) setting forth its calculation of the Purchase Price and each of its components.  The Closing Statement shall be prepared in accordance with the Accounting Principles, except as otherwise contemplated by the definitions of Net Working Capital, Indebtedness or Cash.  During the thirty (30) days immediately following the Sellers’ receipt of the Closing Statement, Target shall provide the Requisite Sellers and their representatives with reasonable access, during normal business hours and after reasonable advance notice, to the books and records of Target for purposes of their review of the Closing Statement.  The Closing Statement and the resulting calculation of the Purchase Price shall become final and binding upon the parties hereto thirty (30) days following Sellers’ receipt thereof unless the Requisite Sellers deliver written notice of disagreement (a “Notice of Disagreement”) to Buyer prior to such date; provided that the Closing Statement and the resulting calculation of Purchase Price shall become final and binding upon the parties upon the Requisite Sellers’ delivery, prior to the expiration of the thirty (30) day period, of written notice to Buyer of  acceptance of the Closing Statement.  Any Notice of Disagreement shall specify in reasonable detail the nature and amount of any disagreement so asserted and attach documentation supporting the Requisite Sellers’ calculations.
(ii) If a timely Notice of Disagreement is delivered by the Requisite Sellers, then the Closing Statement (as revised in accordance with this §2(e)) and the resulting calculation of the Purchase Price shall become final and binding upon the parties on the earlier of (i) the date any and all matters specified in the Notice of Disagreement are finally resolved in writing by Buyer and the Requisite Sellers and (ii) the date any and all matters specified in the Notice of Disagreement not resolved by Buyer and the Requisite Sellers are finally resolved in writing by the Arbiter (as defined below). The Closing Statement shall be revised to the extent necessary to reflect any resolution agreed to by Buyer and the Requisite Sellers or any final resolution determined by the Arbiter in accordance with this §2(e)(ii).
(iii) During the thirty (30) days immediately following the delivery of a Notice of Disagreement or such longer period as Buyer and the Requisite Sellers may agree in writing, Buyer and the Requisite Sellers may attempt to resolve any differences which they may have with respect to any matter specified in the Notice of Disagreement, and all such discussions related thereto (unless otherwise agreed by Buyer and the Requisite Sellers) shall be governed by Rule 408 of the Federal Rules of Evidence and any applicable similar law.
(iv) At the end of such thirty (30) day period, Buyer and the Requisite Sellers shall submit any and all matters (but only such matters) which remain in dispute and which were properly included in the Notice of Disagreement to a nationally-recognized independent accounting firm that is mutually selected by Buyer and the Requisite Sellers (the “Arbiter”) for review and resolution.  Buyer and the Requisite Sellers shall instruct the Arbiter to, and the Arbiter shall, make a final determination of the items included in the Closing Statement (to the extent such amounts are in dispute) based solely on presentations by Buyer and the Requisite Sellers and in accordance with the guidelines and procedures set forth in this Agreement (i.e., not on the basis of an independent review).  Buyer and the Requisite Sellers shall cooperate with the Arbiter during the term of its engagement.  Buyer and the Requisite Sellers shall instruct the Arbiter not to, and the Arbiter shall not, assign a value to any item in dispute greater than the greatest value for such item assigned by Buyer, on the one hand, or the Requisite Sellers, on the other hand, or less than the smallest value for such item assigned by Buyer, on the one hand, or the Requisite Sellers, on the other hand.  
(v) The Closing Statement and the resulting calculation of the Purchase Price shall become final and binding on the parties hereto, if not already mutually agreed by Buyer and the Requisite Sellers, on the date the Arbiter delivers its final determination in writing to Buyer and the Requisite Sellers (which final determination shall be requested by Buyer and the Requisite Sellers to be delivered not more than thirty (30) days following submission of such disputed matters), and such final determination by the Arbiter shall not be subject to court review or otherwise appealable[, absent manifest error].  
(vi) The fees and expenses of the Arbiter pursuant to this §2(e) shall be borne by Target, on the one hand, and the Sellers, on the other hand, based upon the percentage which the aggregate portion of the contested amount not awarded to each party bears to the aggregate amount actually contested by such party.  For example, if the Requisite Sellers claim the Purchase Price is $1,000 greater than the amount determined by Buyer, and Buyer contests only $500 of the amount claimed by the Requisite Sellers, and if the Arbiter ultimately resolves the dispute by awarding the Sellers $300 of the $500 contested, then the costs and expenses of the Arbiter will be allocated 60% (i.e., 300 ÷ 500) to Target and 40% (i.e., 200 ÷ 500) to the Sellers.
(vii) If the Purchase Price is greater than the Estimated Purchase Price, such excess shall be allocated among Sellers in proportion to their respective holdings of Target Shares as set forth in §4(b) of the Disclosure Schedule, and Buyer shall or shall cause Target to pay such amounts to each Seller[, together with interest on such excess at the Applicable Rate on such date, calculated on the basis of the actual number of days elapsed from the Closing Date to the date of payment,] by wire transfer of immediately available funds to within five (5) Business Days after the Closing Statement becomes final and binding in accordance with §2(e)(vi)[; provided, however, that Buyer, in its sole discretion, may elect to be paid such amount from the Escrow Amount, in which case the Requisite Sellers shall deliver any instruction or other documentation required by the Escrow Agreement to permit such payment to Buyer (or its designees)].  If the Estimated Purchase Price is greater than the Purchase Price, within five (5) Business Days after the Closing Statement becomes final and binding in accordance with the terms hereof, Sellers jointly and severally shall make an aggregate payment to Buyer (or its designees) of the amount by which the Estimated Purchase Price exceeds the Purchase Price[, together with interest on such excess at the Applicable Rate on such date, calculated on the basis of the actual number of days elapsed from the Closing Date to the date of payment,] by wire transfer of immediately available funds.  [Buyer shall have the option of recouping all or any part of any amount Sellers owe Buyer pursuant to this §2(e)(vii) by notifying Sellers that Buyer is reducing pro rata the principal amounts outstanding under the Buyer Notes. Such recoupment shall affect the timing and amount of payments required under the Buyer Notes in the same manner as if Buyer had made a permitted prepayment (without premium or penalty) pro rata thereunder.]
(viii) Any payment made pursuant to this §2(e) shall be treated as an adjustment to the Purchase Price.
III. Add new provision at end of §8 sample acquisition agreement 2201 (the pro-buyer stock purchase agreement), sample acquisition agreement 2202 (the pro-seller stock purchase agreement), and 2203 (the neutral stock purchase agreement) as follows:
( ) Purchase Price Adjustment. Notwithstanding anything to the contrary herein, Sellers shall not be obligated to indemnify Buyer against any Adverse Consequences as a result of, or based upon or arising from, any claim or liability to the extent such claim or liability is taken into account in determining [the Purchase Price pursuant to §2(e) above].