1. Private Alternatives to the Public Markets How to Survive and Grow in a Capital Constrained Environment A Private Conference on May 16, 2001 William Mutryn Holland & Knight LLP M&A:Principal Structural and Legal Issues

2. Structural Legal Issues  Prevalent Transaction Structures  Use of Stock as Consideration  Tax Elections  Closing Balance Sheet  Indemnity by Sellers  Escrow  Survival Period  Cap  Threshold  Contingent Consideration

3. Prevalent Transaction Structures  Stock Purchase  Needed for Seller capital gains  Avoidance of novation  Triangular Merger  Stock as consideration  Corporate record issues  Insulation of Liabilities  Avoidance of Novation  Asset Purchase  Novation not an issue  Target is S Corp – no double tax  Target has unresolved liabilities  Sale of portion of Target's business

4. Tax Elections  Section 338(h)(10): Treats Stock Sale as Asset Sale  Used in Limited Circumstances  Principal Effects on Seller u May convert receivables to ordinary income  Principal Effects on Buyer u Permits purchase price to be expensed u Increases basis of purchased businesses

5. Use of Buyer’s Stock as Consideration  Tax Deferral  Risks to Seller u Price – collar u Liquidity – Rule 144 u Registration Rights  Valuation

6. Indemnity by Sellers  Escrow; Offset  Survival Period of Reps and Warranties  Caps  Thresholds/Basket  No Limits: Breach of Covenants, Fraud, Willful Misconduct, Environmental  Offsets: Insurance, Tax, Mitigation

7. Contingent Consideration  Purpose  Time Period: 1 to 2 years  Criteria: Revenues, EBIT, Gross Profit  Advantages u Rewards performance u Purchase price appears greater u Win/Win  Disadvantages: u Difficult to Write and Negotiate u Subject to Disputes u Need to Retain Separateness u May Not Optimize Business Decisions