In land sales contracts, this type of provision is commonly referred to as overspending. Measures to avoid measures should also be included. It can be very easy to circumvent an anti-embarrassment clause by using option agreements to make other transactions beyond the period during which the anti-embarrass clause is active. A management team can buy a business from a professional investor. The seller is concerned that buyers, being closer to day-to-day business, may have better information about the company`s future prospects. The seller therefore insists on an anti-embarrass clause to ensure that the price is fair. It can be quite difficult to formulate such clauses in order to anticipate and cover all the circumstances that might arise in the future, in which you think the clause should apply or not. As a result, many contracts have a general clause (which could be called a “non-circumvention clause” or “anti-circumvention clause”) that is intended to apply an “elephant” rule, that is, a rule that, if something happens that, in retrospect, should really fall within the non-embarrass clause, something should be taken into account in the application of the clause. It`s an “elephant” rule, because if you haven`t seen an elephant, it can be hard to describe it, but you really know you`ve encountered one when it`s sitting on you! But this type of clause still needs to be clear enough for a court to make a decision consistent with the decision. Other reasons for the inclusion of an anti-embarrass clause may be that, for another reason, the value of the asset is inherently uncertain at the time of sale or that the seller simply wishes to participate in a future capital gain under the terms of the agreement. An anti-embarrassing clause provides that the seller receives an additional payment (additional consideration) of the sale value when the buyer resells the sale value within a specified period, usually between one and three years after the closing of the initial sale (limited period). In June 2012, Starbev entered into an agreement to sell its business to U.S.
brewer Molson Coors. The consideration included a cash sum and a “note” for a deferred amount. Because of the manner in which the CVR contract was drafted, ICEH was not, on its face, entitled to participate in the note element, since it was not payable until after December 2012, i.e. after the three-year period. Some contracts include, among other things, an “anti-embarrassing clause.” They are supposed to prevent the seller from looking too stupid when the buyer sells the business shortly after buying the business at a massive markup. A seller might pay particular attention to the inclusion of such an agreement if he suspects that the buyer might attempt to form a return agreement with another buyer who is in the wings. But it can also be worth it if no one is really too sure of fair value for the business, or if the seller simply wants to share in a possible future unusual increase in business value. I have recently looked at several, for example in a case where one shareholder sold its shares to the other shareholder for 500t, contained an anti-embarrassing clause stating that if the shares were resold within 3 years for more than that, the buyer would pay the seller a portion of the charge (the share that decreases over the 3-year period).
An anti-embarrass clause stipulates that an additional consideration must be paid to the seller in the event of a trigger event during the limited period. A triggering event is the sale (through a transaction or series of transactions) of all or substantial portion of the sale`s assets to a third party.