Jones Day Reavis Pogue The Acquisition Term Sheet

Jones, Day, Reavis & Pogue The Acquisition Term Sheet from the Seller’s Perspective By Conrad E. J. Everhard

When You Cut Your Deal, Don’t Stop 1 Negotiating at the Purchase Price • Structure • Liquidity • Personal Liability • Employment Package • Due Diligence • Non-compete 2

2 Reduce Principal Terms of Deal To Writing (LOI or Term Sheet) 3

3 Avoid Public Disclosure of Transaction as Long as Possible 4

4 Bring Out Your Dirty Laundry at the Outset 5

5 Make Sure that Purchase Price is Liquid • Market Risk Pre-Closing • Market Risk Post-Closing 6

Market Risk Pre-Closing • Two kinds of pricing: Fixed Exchange Ratio or Fixed Price • Fixed Exchange Ratio: Share risks of upsidedownside after announcement • Fixed Dollars: Upside protection held by Buyer and downside protection held by Seller • Collars, Floors, Price Protection, Closing Price 7

Market Risk Post-Closing • Securities Laws - US, Europe, Asia • Insider Trading Policies of Buyer • Pooling Rules (Affiliates) • Contractual Restrictions • Market Conditions and Other Intangibles 8

Strategies for Enhancing Liquidity of U. S. Securities • Insist on Registration Statement at Closing u Guarantee Trading Windows • Do Your Due Diligence • Don’t Become an Insider or Become a Super-Insider • Early Publication of Combined Financials • Hedge and Put Mechanisms, Price Protection 9

6 Don’t Give The Purchase Price Back • Purchase Price Adjustment • Representations and Warranties • Personal Indemnities 10

Strategies For Limiting Liability Purchase Price Adjustment • Watch Out for Contingent Liabilities u No Bearing to Actual Loss • Watch Out for Measurement Date • Coordinate Interaction Between PPA and Indemnities (Don’t Double Count) 11

Strategies for Limiting Liability Representations and Warranties • Factor Exposure into Purchase Price • Eliminate Post-Closing Effects from Liability Exposure • Limit Recourse to Escrow Holdback u Risk Shifting and Catastrophic Exposure 12

Strategies for Limiting Liability • Incentivize Buyer to Act Reasonably Deductibles and Caps, Cost Sharing u Limit Survival Period of Warranties u Place Control on Third Party Claims u Put Legal Fees of Buyer at Risk u • Offer Alternatives Comprehensive Due Diligence u Opinions of Counsel u Insurance, Others u 13