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The Acquisition Term Sheet from the Seller’s Perspective

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 Negotiating at the Purchase Price. 1. Structure Liquidity Personal Liability Employment Package Due Diligence Non-compete.

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The Acquisition Term Sheet from the Seller’s Perspective

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

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

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

  4. Avoid Public Disclosure of Transaction as Long as Possible 3

  5. 4 Bring Out Your Dirty Laundry at the Outset

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

  7. 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

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

  9. Strategies for Enhancing Liquidity of U.S. Securities • Insist on Registration Statement at Closing • 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

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

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

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

  13. 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

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