© Matthew Arnold & Baldwin LLP, All rights reserved. Richard Phillips presenting at The IoD on 21 May 2013

Strategic planning for company exit Richard Phillips Partner, Corporate Team

Introduction Why has this bloke got up to speak? What is his relevance to my strategy?!

The importance of knowledge “I’ve destroyed three rainforests for them!” “I thought I would save the cost” “But it was only 5% of the shares” “I didn’t have the time to keep my records” “I can’t do this – there is too much to do”

Overview 1.Preparation 2.What the process involves 3.What each party requires and why 4.Ignorance is not bliss

Preparation Start now – get your affairs in order – management – terms of business – employees – intellectual property What type of deal – selling shares or selling/trading property? – the difference – liability – contracts – employees – what will your lawyer need to do differently? Who will you sell to? – influence recruitment – employee incentive schemes

What the Process involves Finalising the commercial deal – heads of terms Due diligence and information gathering Documentation: – to reflect commercial deal – to allocate risk between parties Negotiation/meetings Finance aspects – cognisance of Buyer funding Dealing with employees – TUPE – due diligence Final documentation will be the deal – not things said/done before Time commitments Practical estimates – gulf in risk allocation – awkward other lawyer – third parties – landlord/financier/change of control – relative size and sophistication of Seller and Buyer – Buyer from a different jurisdiction

What each party requires and why Buyer – protections – warranties – indemnities – retention – completion accounts – restrictive covenants – deferred consideration – and earn out? Seller – security and defence – as much risk-free money as possible? – greater potential sum but more risk? – security for deferred consideration – disclosures and limitations on warranties

Ignorance is not bliss “I’ve destroyed three rainforests for them” Eco-conscious seller who underestimated the sheer volume of information required by the hungry NASDAQ-listed buyer.

Ignorance is not bliss “I thought I would save the cost” Seller of a telecommunications software company which made the decision not to have its trading terms drafted properly and ended up giving indemnities to the Buyer because of the Buyer’s perception of risk and unlimited claims from customers.

Ignorance is not bliss “But it was only 5% of the shares” Owner – manager who gave employees 5% of his share capital without protective provisions in the articles or shareholders’ agreement. Result – held to ransom and the minorities got an enhanced value.

Ignorance is not bliss “I didn’t have the time to keep my records” Potential Seller whose deal fell apart because the Buyer lost confidence in the business – perceived too great a risk because nothing was tied down.

Ignorance is not bliss “I can’t do this – there is too much to do” Seller whose deal was delayed because he could not devote the time to it – leading to stress and a more difficult negotiating position.

Contact Richard Phillips Partner, Corporate Team E: T: Matthew Arnold & Baldwin LLP - Solicitors 85 Fleet Street, London, EC4Y 1AE 21 Station Road, Watford WD17 1HT E: W:

These slides have been produced only for the purposes of illustrating a talk given by Richard Phillips on 21 May They are not intended to be relied upon by any party and cannot constitute advice. Matthew Arnold & Baldwin LLP cannot be responsible in any way for any material contained herein.