The Acquisition Term Sheet from the Seller

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The Acquisition Term Sheet from the Sellers
Perspective
Jones, Day, Reavis Pogue

• By Conrad E. J. Everhard

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When You Cut Your Deal, Dont Stop Negotiating at
the Purchase Price
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• Structure
• Liquidity
• Personal Liability
• Employment Package
• Due Diligence
• Non-compete

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Reduce Principal Terms of Deal To Writing (LOI
or Term Sheet)
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Avoid Public Disclosure of Transaction as Long as
Possible
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5
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Bring Out Your Dirty Laundry at the Outset
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Make Sure that Purchase Price is Liquid
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• Market Risk Pre-Closing
• Market Risk Post-Closing

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Market Risk Pre-Closing

• Two kinds of pricing Fixed Exchange Ratio or
  Fixed Price
• Fixed Exchange Ratio Share risks of
  upside\downside after announcement
• Fixed Dollars Upside protection held by Buyer
  and downside protection held by Seller
• Collars, Floors, Price Protection, Closing Price

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Market Risk Post-Closing

• Securities Laws - US, Europe, Asia
• Insider Trading Policies of Buyer
• Pooling Rules (Affiliates)
• Contractual Restrictions
• Market Conditions and Other Intangibles

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Strategies for Enhancing Liquidity of U.S.
Securities

• Insist on Registration Statement at Closing
• Guarantee Trading Windows
• Do Your Due Diligence
• Dont Become an Insider or Become a
  Super-Insider
• Early Publication of Combined Financials
• Hedge and Put Mechanisms, Price Protection

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Dont Give The Purchase Price Back
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• Purchase Price Adjustment
• Representations and Warranties
• Personal Indemnities

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Strategies For Limiting Liability
Purchase Price Adjustment

• Watch Out for Contingent Liabilities
• No Bearing to Actual Loss
• Watch Out for Measurement Date
• Coordinate Interaction Between PPA and
  Indemnities (Dont Double Count)

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Strategies for Limiting Liability
Representations and Warranties

• Factor Exposure into Purchase Price
• Eliminate Post-Closing Effects fromLiability
  Exposure
• Limit Recourse to Escrow Holdback
• Risk Shifting and Catastrophic Exposure

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Strategies for Limiting Liability

• Incentivize Buyer to Act Reasonably
• Deductibles and Caps, Cost Sharing
• Limit Survival Period of Warranties
• Place Control on Third Party Claims
• Put Legal Fees of Buyer at Risk
• Offer Alternatives
• Comprehensive Due Diligence
• Opinions of Counsel
• Insurance, Others