1. Strategic Planning for Company Exit Legal considerations Mark Harden, Partner Thrings LLP

2. The Principal Legal Steps Initial considerations Sale of company v sale of business Pre-sale structuring Making sure everything is in order PreparationHead of Terms Due diligence SaleLegal agreements Signing and completion

3. Pre-sale considerations Sale of a company A transfer of ownership of the shares in the company A sale of shares is usually a cheaper, simpler and quicker transaction Sale of a business A transfer of individual business assets and liabilities Some assets and liabilities can be excluded

4. Pre-sale considerations Sale of a company Change of control provisions will require third party consents Potential problems with missing or difficult minority shareholders Sale of a business Transfer of some assets may require third party consents Under TUPE, employees transfer automatically

5. The Heads of Terms A written record of the principal terms to complete the transaction: –What will be sold –The price: how much, how to be paid and when –The process: who is to do what and when –Any conditions to be satisfied to complete –Confidentiality and exclusivity (if any) Usually non-legally binding (except for confidentiality and exclusivity)

6. An information gathering exercise by the Purchaser’s team: –To seek out problems and weaknesses –To inform the decision whether to proceed –To assist in setting the price –To assist in drafting the legal documentation Keep an accurate record of all information provided Representations excluded Due Diligence

7. The Principal Legal Documents Transfer of sharesTransfer of a business Share Purchase Agreement Disclosure Letter Tax Deed of Covenant Stock Transfer Form Business Transfer Agreement Disclosure Letter Transfer of Property Novation of Contracts Assignment of Intellectual Property

8. The Structure of a Typical Sale Agreement Specify exactly what is being sold Consideration Actions pending completion The mechanics of what is to happen at completion Warranties and indemnities Restrictive covenants Confidentiality and announcements Legal boilerplate clauses

9. Payment of the purchase price Method of payment –Cash, loan notes, share exchange Timing of payment –On completion –Retention –Deferred Earn-out mechanisms –Length of earn-out –Calculation –Control during earn-out period –Security for the seller –Dispute resolution

10. Warranties What are they? Contractual statements which give rise to a claim if they turn out to be untrue Why needed? The buyer will insist on them for protection: CAVEAT EMPTOR – buyer beware Who gives them? The sellers who are involved in the management of the business Consequences of multiple sellers

11. Typical Warranties Information supplied Authority and capacity of the sellers Accounts and records Compliance Property (freehold and leasehold) Operational assets Contracts

12. Typical Warranties Intellectual Property Employees Information Technology Environment Taxation Litigation

13. Warranties distinguished from indemnities Warranties A contractual statement from the seller about the affairs of the target company or business The remedy is a claim for damages for breach of contract Indemnities A promise to reimburse the buyer for a particular liability should it arise The remedy is a debt action for the amount due

14. Warranties distinguished from indemnities Warranties The onus is on the buyer to show breach and quantifiable loss The buyer has a duty to mitigate his loss Indemnities The procedure is far simpler, with reimbursement pound for pound Generally no duty to mitigate loss

15. Limiting Warranty Claims Total liability should not exceed the purchase price Impose time limits for claims Set a minimum threshold for individual claims Sometimes set a minimum threshold for a basket of claims Obligation to pursue a third party remedy first Quantify appropriate warranties by reference to knowledge: “to the best of the seller’s knowledge and belief” “so far as the sellers are aware”

16. Disclosures A letter from the sellers setting out exceptions and qualifications to the warranties Prepared in two parts: –general exceptions based on publicly available information –specific exceptions to specific warranties A disclosure will only be accepted if it is deemed “fair”, meaning it includes reasonable detail

17. Potential Difficulties Unrealistic expectations Overseas buyer Difficult buyer Awkward lawyer acting for buyer Size/bargaining strength of the parties Third party consents

18. Summary Take advice early Be prepared Anticipate problems Be pragmatic Don’t underestimate the demands on management time

19. Thank you These are presentation slides only and the information contained does not constitute definitive advice. Thrings is the trading style of Thrings LLP, a limited liability partnership registered in England and Wales (registered number OC342744), authorised and regulated by the Solicitors Regulation Authority. A list of LLP members, together with others designated as partners, is displayed at its registered office: 6 Drakes Meadow, Penny Lane, Swindon SN3 3LL. A list of the members of the LLP is available for inspection at the registered office, together with a list of those non members who are referred to as partners. The word “partner” is used to refer to a member of the LLP, or an employee or consultant with equivalent standing and qualifications.