The document summarizes the key stages and considerations for mergers and acquisitions transactions. It discusses the three main types of transactions - asset purchases, stock purchases, and mergers. It then outlines the four main stages of an M&A deal: 1) letter of intent, 2) definitive agreement, 3) closing, and 4) post-closing integration. For each stage, it provides an overview of typical processes, documents, due diligence activities, and regulatory requirements.

1. Mergers and Acquisitions In 2010 C. Craig Lilly [email_address] 650-843-3232

2. Acquisitions: Three Types Asset Purchase Stock Purchase Merger

3. Asset Purchase STOCKHOLDERS TARGET STOCKHOLDERS BUYER $$ ASSETS + LIABILITIES

4. Asset Purchase Buyer acquires only assets and liabilities of the company Buyer can negotiate which outstanding or contingent liabilities to assume and not to assume Buyer can select which of the seller’s assets to acquire

5. Asset Purchase (cont’d) Buyers prefer to buy assets Sellers prefer to sell stock The tax disadvantages of an asset deal to stockholders of the seller lead to a stock or merger transaction Asset purchases are most common in the acquisition of divisions of companies

6. Stock Purchase STOCKHOLDERS TARGET STOCKHOLDERS STOCK STOCKHOLDERS TARGET STOCKHOLDERS BUYER $$ + STOCK

7. Stock Purchase Purchaser buys the outstanding stock of a corporation directly from the corporation’s shareholders The corporation need not be a party to the transaction and remains unchanged after the closing Preferred by sellers because: all liabilities are transferred along with the company no double taxation no need to liquidate the company after the transaction

8. Merger One corporation merges with another to become a single ongoing corporation One company is designated the surviving and the other the disappearing The surviving corporation acquires all of the assets and succeeds to all of the liabilities of the disappearing corporation, and the disappearing corporation ceases to exist as a separate legal entity Stockholders of acquired corporation typically receive cash, stock of the surviving corporation, or some combination of stock and cash A merger may be taxable or non-taxable to the acquired corporation’s stockholders, depending on the mix of consideration received by such stockholders In most cases, merger must be approved by the boards of directors and stockholders of both corporations Stockholders of the acquired corporation who formally oppose merger may perfect dissenters rights to have the value of their stock determined by judicial procedure involving an appraisal.

9. Variations Reverse Triangular merger in which a buyer incorporates a subsidiary that merges into the target company Two-step transactions, in which a buyer acquires a controlling interest in the target by a stock purchase and follows that transaction with a merger in order to eliminate remaining minority shareholders

10. TARGET BECOMES A WHOLLY OWNED SUB OF BUYER AND CHANGES NAME TO BUYER’S NAME Reverse Triangular Merger STOCKHOLDERS TARGET STOCKHOLDERS BUYER $$ MERGES INTO TARGET

11. BY LAW, “SURVIVING” CORPORATION SUCCEEDS TO ALL ASSETS, RIGHTS, LIABILITIES OF “DISAPPEARING” CORPORATION UNWILLING TARGET STOCKHOLDERS MAY “PERFECT” DISSENTERS RIGHTS Forward Triangular Merger STOCKHOLDERS TARGET STOCKHOLDERS Buyer STOCK MERGES INTO BUYER $$

12. M&A Transaction Stages Stage 1: Through the letter of intent Stage 2: Through the definitive purchase agreement Stage 3: To the closing Stage 4: After the closing

13. M&A Overview: Stage 1 LETTER OF INTENT DEFINITIVE AGREEMENT CLOSING Stage 1 Stage 2 Stage 3 Find Target Engage Ibanker Financial Analysis Preliminary Due Diligence Negotiate Basic Terms Target NDA IBanker Engage-ment Letter Due Diligence List Regulatory Strategy Business Deal Documents Regulatory

14. Stage 1: Through the Letter of Intent Buyer and seller define respective goals in transaction and find one another Non-disclosure agreement (NDA) is signed Investment banker is engaged Buyer undertakes due diligence investigation of seller Terms of transaction are agreed to by signing a letter of intent

15. Stage 1: The Letter of Intent Describes the most important elements of a transaction: type of transaction price and form of consideration, with a clear understanding of business, tax and legal ramifications of transaction payment terms and key contingencies (such as buyer financing) Sets fundamental transaction structure and terms Sets expectations by both parties on how the transaction will be managed Does not obligate the parties to complete the transaction

16. Stage 1: Letter of Intent-Other Considerations Parties will be unlikely to agree to the modification or amendments to the letter of intent Courts have held that even non-binding letters of intent create a binding obligation to negotiate in good faith based on the terms set forth in the letter Psychological impact should not be ignored Both parties tend to be committed to the conclusions outlined and provides a roadmap to envisioning the transaction through to completion It assists in maintaining the parties’ commitment during the ensuing detailed negotiations and established the broad context in which the details can be put in perspective.

17. Stage 1: The Letter of Intent – Binding Terms Exclusivity agreements in which seller agrees not to negotiate a sale with third parties for an agreed period of time Confidentiality agreements Expense agreements

18. Stage 1: The Letter of Intent May require buyer to pay the seller a nonrefundable deposit for: granting an exclusivity period to the purchaser, during which person the seller will not negotiate with any other potential buyer the purposes of covering some of the seller’s costs in the transaction if the seller is in a particularly strong bargaining position

19. Stage 1: Due Diligence Identify risks material to Buyer’s decision whether or not to do the deal Identify risks/issues to be addressed in transaction documents Identify any third-party consents needed Identify post-closing transition issues

20. Stage 1: Initial Questions for Buyer’s Legal Due Diligence Team What are client’s basic assumptions about target? Company profile (scope of business/nature of assets) Structure of transaction? Bargain price or premium? Budget for due diligence? Timing of transaction/due diligence? Client’s relative aversion to risk?

21. Stage 1: Initial Issues for Seller’s Legal Team How much does legal team know about it own client and risks? What major risks need to be disclosed and how? Structure of transaction Level of Client’s organization of documents/information? Identify appropriate point person(s) Have all Buyer parties signed NDA? What type of access should be provided (data room/respond to document requests/provide general access to files)?

22. Stage 1: Regulatory Matters Affirmative Require agency approval prior to closing Negative Filing with the relevant agency with closing permitted if the agency does not act to delay or stop the transaction within a specified time period Informational Example: Filing of notices of the issuance of unregistered securities with the SEC

23. Regulatory Approvals – When to Begin the Process? Seek after the letter of intent (stage 1) or definitive agreement (stage 2) is signed Establish an approval strategy for difficult regulatory approvals Consider starting approval process after letter of intent to exhaust some of the waiting period, if applicable Sellers resist public filings until the definitive agreement is signed in order to avoid publicity that can impact the transaction

24. M&A Overview: Stage 2 LETTER OF INTENT DEFINITIVE AGREEMENT CLOSING Stage 1 Stage 2 Stage 3 Find Target Engage Ibanker Financial Analysis Preliminary Due Diligence Negotiate Basic Terms Target NDA IBanker Engage-ment Letter Due Diligence List Due Diligence Negotiate Detailed Terms Negotiate Ancillary Agreements, e.g., Employment Agreements Purchase Agreement Ancillary Agreements Press Release Regulatory Strategy/ Applications Documents Business Deal Regulatory Regulatory Strategy

25. Stage 2: Through the Definitive Purchase Agreement Due Diligence Definitive Agreement Regulatory Approvals

26. Stage 2: Due Diligence Business Legal Accounting Other key areas of interest (environmental etc)

27. Stage 2: Due Diligence – Legal Review Minute books and charter documents Issuance of securities Key contracts and loan documentation Governmental permits Employment matters Pending litigation Environmental proceedings Other fundamental legal matters affecting the seller’s business

28. Stage 2: Due Diligence – Accounting Review Financial statements Accounting practices Tax compliance Inventories

29. Stage 2: Due Diligence – Specialists Environmental engineers Technical specialists Others, depending on nature of transaction and business

30. Due Diligence: Data Room Often used in large deals with multiple bidders Also used when transaction is very confidential (offsite data room) Keeps document disclosure organized Often limited time frames for access/puts pressure on Buyer’s team

31. Due Diligence: Buyer’s Approach to Data Room Review Obtain document index What specialists are needed? Learn data room ground rules, e.g., Number of reviewers allowed Access times Copy/recording capabilities Accommodations Need for translators What is end product (report/determine bid price)

32. Due Diligence: How to Conduct Review Appoint team leader for due diligence Discuss objectives/materiality with transaction team leader What will be end deliverable? Does client want complete inventory of documents or just summary? Keep leaders apprised Consider using uniform review forms Eyes open for material risk/contract issues/transition issues Don’t assume leaders/client know about material liabilities

33. Stage 2: The Definitive Agreement Specific identities of the parties Exact description of what is being sold Exact description of price and terms Lengthy and detailed representations and warranties of the parties Each party’s agreements as to its conduct up to and beyond the closing Conditions that must be filled before either party is obligated to close Details on the time and mechanics of closing Indemnities related to breaches of the agreement or the representations and warranties Dispute resolution provisions Miscellaneous clauses relating to any other aspects of the sale

34. Stage 2: Definitive Agreement- Representations and Warranties Provide disclosure Provide foundation for other party to terminate acquisition prior to closing Provide basis for other party’s right to indemnification and other remedies

35. Stage 2: Definitive Agreement: Standard Reps and Warranties Corporate organization Capitalization Authority, consents Regulatory matters Finances, accounting Litigation Taxes Employee matters Contracts Environmental matters Assets Catch-all (e.g., no material adverse effect/change)

36. Disclosure Schedule (a.k.a. Schedule of Exceptions) State exceptions to R&Ws List specified items Material contracts Insurance policies Employees, officers and directors information

37. Considerations Regarding R&Ws Party wants other party’s R&Ws to be broad, but its own R&Ws to be narrow Qualifiers Knowledge Materiality Limited time period Timing Date of agreement Date of closing (“bring down”) Other date Survival

38. Stage 2: The Definitive Agreement Parties are obligated to complete the transaction when definitive agreement is signed Completion subject to various conditions to closing stockholder approval regulatory approval third party approvals

39. Stage 2: The Definitive Agreement –Ancillary Documents Signed at closing: promissory notes security agreements bills of sale non-competition and employment agreements escrow instructions officers’ certificates legal opinions

40. Stage 2: Regulatory Approvals Apply for approvals if process has not yet begun

41. M&A Overview: Stage 3 LETTER OF INTENT DEFINITIVE AGREEMENT CLOSING Stage 1 Stage 2 Stage 3 Find Target Engage Ibanker Financial Analysis Preliminary Due Diligence Negotiate Basic Terms Target NDA IBanker Engage-ment Letter Due Diligence List Due Diligence Negotiate Detailed Terms Negotiate Ancillary Agreements, e.g., Employment Agreements Purchase Agreement Ancillary Agreements Press Release Proxy Statement Transition Preparation Closing Preparation Final Due Diligence Third Party Consents Closing Certificates Press Release Regulatory Applications/ Approvals Documents Business Deal Regulatory Regulatory Strategy Regulatory Strategy/ Applications

42. Stage 3: To the Closing Final due diligence Verify no change to the representations and warranties If buyer discovers a material change, the buyer may have an out and refuse to close or threatens to abandon the transaction Buyer prepares for management transitions by becoming more familiar with operations of company Final financing arrangements made

43. Stage 3: The Closing

44. Stage 3: The Closing Documentation Title documents and officers certificates Final director and stockholder approval Any necessary third-party consents

45. Stage 3: Closing: Exchange of Documents Parties will exchange all cash, stock, and documents required under the agreement such as notes stock certificates financing statements bills of sale deeds

46. Stage 3: Regulatory Matters Need to be finalized before final closing can occur Push for any needed consent

47. M&A Overview: After the Closing LETTER OF INTENT DEFINITIVE AGREEMENT CLOSING Stage 1 Stage 2 Stage 3 Find Target Engage Ibanker Financial Analysis Preliminary Due Diligence Negotiate Basic Terms Due Diligence Negotiate Detailed Terms Negotiate Ancillary Agreements, e.g., Employment Agreements Proxy Statement Transition Preparation Closing Preparation Final Due Diligence Complete Transition Deal with any problems Target NDA IBanker Engage-ment Letter Due Diligence List Purchase Agreement Ancillary Agreements Press Release Third Party Consents Closing Certificates Press Release Closing Filings Certificates Regulatory Strategy Documents Business Deal Regulatory Regulatory Strategy/ Applications Regulatory Applications/ Approvals Regulatory Approval

48. Stage 4: After the Closing Security interests perfected Filings with Department of Commerce and SEC

49. Disclaimer This information has been prepared for general informational purposes only. It does not constitute legal advice, and is presented without any representation or warranty whatsoever as to the accuracy or completeness of the information. No one should, or is entitled to, rely in any manner on any of this information. Parties seeking advice should consult with legal counsel familiar with their particular circumstances.

50. C. Craig Lilly 650.843.3232 [email_address] This presentation is intended only as a general discussion and should not be regarded as legal advice. For more information, please contact Craig Lilly at 650.843.3232.