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Anti-Embarrassment Clause Share Purchase Agreement

11 September 2021 No Comment

The anti-embarrassment clause is also called over-publishing when it applies to the sale of land or other property. This clause mainly concerns the seller of land or shares and gives the seller an increase if the value of the asset increases in the future. In the case of land, this means that the seller may charge an increased value if the land has increased due to a particular event, for example. B by applying for a building permit or permission to use it for purposes that did not exist at the time of sale. It is not only about the increase in the market value of the asset due to typical market forces, but also about certain events that increase its value. The additional consideration is probably a percentage of the difference between the price at which the buyer buys the shares and the price at which he resells them. It can still be modified until the date between the two transactions and/or the number of shares resold (the acquisition of a majority stake in a company through a majority stake generally has a higher price per share than a non-dominant stake). An anti-embarrassment clause, also known as an on-sale, is a clause that allows the seller to recalculate the purchase price of a share and subject it to an increase if the buyer sells the same shares at a higher price. This clause only applies for a specified period after the conclusion of a given transaction.

This clause is mainly used in share purchase contracts. In this recent case (Starbev GP Ltd v Interbrew Central European Holding), a Starbev company bought ICEH`s European brewing business in December 2009. As part of the agreement, they entered into a form of non-embarrassment agreement, which they called the Contingent Right Agreement (“CVR Agreement”). This gave ICEH the right to obtain additional deferred consideration over the next three years on a subsequent sale of the transaction. The development of an anti-embarrassment clause must be the subject of very careful reflection and is not easy. If the seller has sufficient bargaining power and the circumstances are reasonable, it may be preferable for the seller to retain a stake in the value of the assets of sale or to collect a royalty on the sale consideration for the payment of additional consideration as additional protection. The draftsman must be careful not to be ashamed of his own anti-embarrassment clause. It can be quite difficult to formulate such clauses in order to anticipate and cover all the circumstances that may arise in the future, where you think the clause should apply or not. Many contracts therefore have a general clause (which could be called a “non-circumvention clause” or “avoidance clause”) that, on the whole, attempts to apply an “elephant rule”, i.e. that states that if something happens and which obviously should actually be covered a posteriori by the non-embarrassment clause, that something should be taken into account when applying the clause.

It`s called an “elephant” rule, because if you haven`t seen an elephant, it can be hard to describe, but you certainly know you`ve encountered one when he`s sitting on top of you! But this type of clause still needs to be formulated clearly enough for a court to make a decision on this basis. . . .

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Kathy Becker (319 Posts)

Kathy is the CEO/President of the Company of Experts, Inc. and oversees this Small Woman Owned Business serving schools, colleges and universities, businesses, corporations and non-profits moving them from deficit models of planning and thinking to engagement, empowerment and collaboration.

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