Structuring and Planning the M&A Transaction (Series: PRIVATE COMPANY M&A BOOT CAMP 2018)

Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.
2© 2018 by DailyDAC, LLC d/b/a Financial Poise Webinars™

The material in this webinar is for informational purposes only. It
should not be considered legal, financial or other professional
advice. You should consult with an attorney or other appropriate
professional to determine what may be best for your individual
needs. While Financial Poise™ takes reasonable steps to ensure
that information it publishes is accurate, Financial Poise™ makes
no guaranty in this regard.
DISCLAIMER

MEET THE FACULTY
4
MODERATOR:
Peter Feinberg Law Office of Peter Feinberg
PANELISTS:
Bob Dekker Insight Advisory Partners
Robert Londin Jaspan Schlesinger LLP
Mark Trembacki Risk Management Levers, Inc.
© 2018 by DailyDAC, LLC d/b/a Financial Poise Webinars™

ABOUT THIS WEBINAR
5
There is an old carpenters’ expression, “measure twice, cut once.” M&A work is just one of many
areas in business and law where this expression resonates. Buyers and sellers, like chess players
anticipating many moves in advance, should envision and plan the route to get a deal done, including
anticipated detours, at the onset of the transaction.
This webinar discusses the similarities and differences between basic M&A transaction structures; the
most common issues that arise in M&A transactions of all kind; and the relationship between
ostensibly unrelated sections of an M&A agreement. One focus of this episode is a threshold question
in many deals: whether the buyer will buy equity or assets. This episode will, in summary form, cover
many of the issues discussed in greater depth in subsequent episodes.
This webinar is delivered in Plain English, understandable to you even if you do not have a
background in the subject. It brings you into an engaging, even sometimes humorous, conversation
designed to entertain as it teaches. And, it is specifically designed to be viewed as a stand-alone
webinar, meaning that you do not have to view the other webinars in the series to get a lot out of it.

ABOUT THIS SERIES
6
Corporate transactions (or “deals”) include many types of transactions. Viewed broadly, a deal can be a
very small matter such as drafting a purchase order, a non-compete agreement, or myriad other single
purpose agreements necessary to document a legal relationship between two parties and extend to large
multi-national acquisitions and financings. One of the most significant types of transactions a company
can enter into, however, and the type that is commonly thought of as needing a “deal” lawyer, is a
Mergers and Acquisitions transaction.
M&A (mergers and acquisitions), viewed broadly, includes buying or selling all or part of a business, as
well as other business combinations, such as mergers. Such “deal” work commonly requires attorneys,
accountants, intermediaries (i.e. investment bankers) to work together.
This webinar series features leading M&A attorneys and other deal professionals speaking about
private company M&A in roughly chronological order, guiding the audience through a conversation
that spans from deal origination, the LOI (letter-of-intent) or term sheet, due diligence, document
drafting and negotiation, closing, and post-closing. (continued on next slide)

ABOUT THIS SERIES (CONT’D)
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Issues addressed include tax planning; corporate governance; closing conditions; representations and
warranties; indemnification provisions; earn-outs; restrictive covenants; antitrust; intellectual property;
and employment. While many of the topics covered apply also to public company M&A, the focus of
this webinar series is on M&A involving a privately owned company.
As with every Financial Poise Webinar, each episode is delivered in Plain English understandable to
investors, business owners, and executives without much background in these areas, yet is also valuable
to attorneys, accountants, and other seasoned professionals. And, as with every Financial Poise
Webinar, each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other
episodes, so that participants will enhance their knowledge of this area whether they attend one, some,
or all episodes.

Dates shown are premiere dates; all episodes will be available on demand after
their premiere date.
EPISODES IN THIS SERIES
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EPISODE #1 The M&A Process: Understanding the Lifecycle 1/18/2018
of a Deal & Basic Deal Documents
EPISODE #2 Structuring and Planning the M&A Transaction 2/15/2018
EPISODE #3 Key & Common Negotiated Provisions-Part 1 3/15/2018
EPISODE #4 Key & Common Negotiated Provisions-Part 2 4/19/2018
EPISODE #5 Post-Closing Issues – Integration & Potential 5/17/2018
Buyer/Seller Disputes

..,,,
OUTLINE
• Transaction Structures
• Tax Planning
• Shareholder Approval Issues
• Reps & Warranties
• Covenants
• Indemnification Issues

..,,,
DRIVERS OF STRUCTURE
10
• Nature of target – is target private or public?
• Who is acquirer – is acquirer strategic or financial?
• Nature of consideration– is buyer paying with cash, notes, stock, or a combination?
• Timing of consideration; adjustments – is all consideration to be paid at closing, or
will there be any deferred payments or adjustments for working capital, earnouts,
etc.?
• Type of transaction – is acquirer purchasing assets or stock of target, or will
transaction take the form of a merger?

..,,,
DRIVERS OF STRUCTURE: Nature of Target
11
Private
Target
Public
Target
• Negotiation will focus on reps and
warranties, indemnity, and
purchase price adjustments
• Less focus on fiduciary out;
shareholder approval is commonly
obtained shortly after signing
• Negotiation focus on conditions to
closing
• No indemnity or purchase price
adjustments
• Reps and warranties act as closing
conditions
• Heavily “market” driven
• Fiduciary out

..,,,
12
DRIVERS OF STRUCTURE: Nature and Timing of
Consideration
NOTES
• Defined value
• Limited liquidity
• Credit risk
ACQUIRER STOCK
• Uncertain value
• Uncertain liquidity
• Potential tax advantages
• Registration rights
CASH
• Defined value
• Certain liquidity
• Key issue often timing

..,,,
TAX OVERVIEW
13
Taxable Asset
Purchases
Tax Issues in
Stock Purchases
Tax Free
Reorganizations
• Taxable Stock
Purchases
• Private Company
• Section 338(h)(10)
Considerations
• Subsidiary of a
Consolidated
Group
• S Corporation

..,,,
14
OVERVIEW OF POTENTIAL TAX LIABILITIES
Historic
Tax
Liabilities
Transaction
Tax
Liabilities
Future Tax
Liabilities
Three basic “buckets” of tax liabilities that can impact economics:

HISTORIC TAX LIABILITIES
15
Pre-closing tax
liabilities relating to
pre-closing periods
are virtually certain
to exist. This issue
is less acute for
development-stage
companies with no
historical profit
Pre-closing tax
liabilities may not
be known until
being assessed
following an audit.

TRANSACTION TAX LIABILITIES
16
• Transaction itself may trigger additional taxes:
✓ Golden parachute payments (Section 280G)
✓ Making a Section 338(h)(10) election
✓ Transaction that is “pursuant to a plan” (e.g. Section 355(e))
✓ Deferred intercompany gains triggered by the sale of a subsidiary out of
a consolidated group
• After-Tax analysis – each party will analyze cost of transaction after
considering all applicable taxes. Taxes attributable to the transaction may
represent either an increase or decrease in purchase price

TAXABLE ASSET PURCHASE AGREEMENTS
17
Tax Representations and Warranties
• Generally fewer and more limited than in a stock purchase agreement
• Seller typically retains liability for Target’s pre-closing taxes, including:
✓ Target income taxes
✓ Sales, ad valorem, or other pre-closing taxes
✓ All or a portion of taxes allocable to the sale and transfer of the assets
• Seller Reps typically include:
✓ Sales and employment withholding taxes have been paid
✓ All other taxes relating to the acquired business have been paid
✓ There are no audits, assessments or deficiencies relating to the transferred business
• Seller may take position that it should represent only that the purchased assets are not subject to any
tax liens

TAXABLE STOCK ACQUISITION AGREEMENTS
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Preparation and filing of tax returns
Payment of taxes
Tax elections and other actions
Cooperation in taking return positions,
audits, and tax disputes
Filing and payment of transfer taxes
Termination of tax sharing agreements

– PRIVATE TARGET
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Overview of Tax Indemnities
• Typically, acquisition agreements contain stand-alone tax indemnification provisions whereby Seller agrees to
indemnify Buyer for -
✓ Pre-closing and relevant Straddle Period taxes of Target
✓ Taxes of the selling consolidated or combined group (as discussed in Section 4)
✓ Certain other relevant taxes, as well as costs and expenses
• In some cases, Seller is also required to indemnify Buyer for damages due to breach of tax representations and
warranties
✓ In some cases, Seller will only indemnify for breaches resulting in pre-closing tax liabilities (vs. increases in
post-closing taxes due to misrepresentations as to tax attributes)
• Interaction of tax indemnifications on general indemnifications should be considered
✓ Tax provisions override general provisions
✓ General basket and cap limitations do not apply
• Seller generally will not indemnify Buyer for increases in target’s tax liabilities resulting from acts taken by Buyer on
or after the closing.

20
Seller may not be required to
indemnify buyer for pre-closing
taxes if tax liability was disclosed on
a closing balance sheet that resulted
in purchase price adjustment or was
taken into account in pricing the
deal
Indemnifications usually
characterized as purchase price
adjustments to make clear that any
payment by Seller should not result
in income to Target or Buyer
Additional Tax Indemnification
Negotiation Issues

(CONT’D)
21
If Seller has agreed to indemnify buyer for pre-
closing taxes, Seller generally will retain control
of tax contests relating to pre-closing tax periods
Tax Audits and Contests

Built-in Asset Gain and 338(h)(10) Election
• Where Target has built-in gain in its assets:
✓ Buyer will want to purchase assets to step up their basis to fair market value
✓ Seller may prefer to sell stock if it would recognize less gain on a stock sale
• A 338(h)(10) election, which allows Buyer to receive a basis step up in a taxable stock sale, is available where
Target is either:
✓ An S corporation
✓ An 80% subsidiary of another corporation
• Both the Seller and the Buyer must agree to make the 338(h)(10) election
• The election recharacterizes transaction as deemed purchase by “New” Target from “old” Target of “old”
Target assets
✓ The deemed asset purchase is followed by a tax-free liquidation of “old” target into Seller
✓ A single level of tax on the asset sale replaces the single layer of tax that would have been paid on the stock
sale
• The 338(h)(10) election can result in incremental income or franchise taxes for Seller
CODE SECTION 338(h)(10) CONSIDERATIONS

(CONT’D)
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• If 338(h)(10) election made:
✓ Target’s historic NOLs, capital losses and credits will
disappear
✓ Buyer generally will have greater depreciation and
amortization deductions
• Buyer must compare detriment of losing Target’s NOLs,
Capital losses and credits (keeping in mind that they may have
been limited under Section 382 and 383) with the benefit of the
increased depreciation and amortization deductions
Effect of 338(h)(10) election on NOLs, Capital
Losses, Credits and Depreciation

(CONT’D)
24
Documenting a 338(h)(10) Election
Buyer should include in letter of intent that
Seller, at Buyer’s request, will participate in
a 338(h)(10) election
Even though the sale of stock is treated as
an asset sale, Buyer needs to get same
basic representations and warranties that it
would get in a private stock acquisition
If Buyer waits until the negotiation of
definitive agreements to raise the issue
(after the price has been agreed), Seller
may seek to be reimbursed for the entire
amount of the incremental cost it bears
on account of making the election

25
Tax Returns and Indemnity
• Seller generally entitled to:
✓ File initial consolidated returns due following closing which reflect Target’s operations prior to closing
✓ File amended consolidated returns for the year in which the transaction closed
✓ Control any audits of these returns, including ability to extend the statute of limitations and to settle or
litigate claims
• Seller will resist attempts to impose restrictions on filing and defending these returns because they generally
include the operations of Seller and all of its subsidiaries
• Because Target remains liable for pre-closing taxes of Seller and the consolidated group, Seller generally gives
Buyer a full indemnity for pre-closing taxes
✓ This indemnity is given even where there is no indemnity protection for non-tax items
✓ One common carve-out is for pre-closing taxes accrued on a closing balance sheet, if balance sheet serves
as basis for purchase price adjustment or accrual is otherwise taken into account in pricing deal.
TAXABLE STOCK ACQUISITION AGREEMENTS –
TARGET IS A SUBSIDIARY IN A CONSOLIDATED GROUP

26
TAX-FREE ACQUISITION AGREEMENTS
Tax Representations and Warranties
• Agreements relating to the acquisition of a company in a tax-free transaction reflect the Seller’s
continuing relationship with the Target and the Buyer
• Because Seller receives Buyer stock in a tax-free acquisition, Buyer may make some or all of the
same tax representations that Seller makes
• Tax representations in a tax-free deal generally mirror those found in a taxable stock purchase
✓ In a “C” reorganization, Seller may try to give limited warranties similar to those in an asset
acquisition, but Buyer may insist on full stock purchase representations because of concerns
about the state law treatment of the transaction.
• Buyer and Seller generally agree to make reasonable efforts to have the transaction qualify as tax-
free
• Buyer and Seller tax counsel generally are required to render a clean opinion as to the tax-free
status of the transaction

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(CONT’D) Tax Covenants
Buyer may resist post-closing covenant on grounds it
could restrict legitimate business decisions beneficial
to all shareholders
✓ If post-closing covenant agreed to,
Buyer will generally limit to a specific
list of restrictions on its actions
✓ Target shareholders may seek a “best”
efforts standard
✓ More common to agree on
“reasonable” efforts
Seller will seek a
representation/covenant that
buyer will take no action – either
pre or post-closing – that would
jeopardize the qualification of the
transaction as tax free
BUYERSELLER

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(CONT’D)
Tax Opinions
• Buyer and Seller tax counsel generally are required to render a clean opinion as to the tax-free status of
the transaction
✓ In case of a “B” or “(a)(2)(E)” reorganization, Buyer’s counsel may not be asked to provide – and
buyer may not be permitted to condition its closing upon – an opinion
✓ Agreement may provide that if counsel for either Buyer or Seller refuses to issue their opinion,
opposing counsel can issue its opinion to both parties to satisfy the closing condition.
• In rendering their opinions, tax counsel generally require Buyer and Seller each to make a series of
representations based on representations that the IRS used to require when it was issuing letter rulings
in this area
✓ These representations generally are not included in the acquisition agreement, but rather in
certificates or letters issued to the two tax counsel

29
(CONT’D)
Indemnity
Buyer generally refuses to indemnify Target shareholders if a putative tax-
free stock exchange is found to be taxable
Tax-free treatment on
the transaction defers
the Target shareholders
tax liability, it does not
eliminate it
Indemnification would
generally unjustly enrich
the Target shareholders

30
REQUIREMENTS BY TRANSACTION
• Stock Purchase Agreements
✓ All shareholders of target company must sell their shares
✓ Potential to purchase 100% outstanding shares and squeeze-out remaining shareholders through merger
✓ Remaining shareholders have dissenters/appraisal rights
• Merger Agreements
✓ Does not require approval of 100% of target company shareholders
✓ Non-consenting shareholders may assert dissenters/appraisal rights
• Asset Purchase Agreements
✓ Shareholders of target company must approve sale
✓ No appraisal/dissenters rights in Delaware (but yes in Illinois)
• Appraisal/Dissenters Rights
✓ Allow non-consenting shareholders to seek “fair value” for shares
✓ Court decides what “fair value” is

• Indemnity
✓ Seller makes a series of reps to Buyer about Seller and its business
✓ Seller provides indemnity if reps are breached
• Closing Condition
✓ Reps true at signing and at closing
✓ Buyer can walk if reps not true at closing
✓ Closing standard may require reps be true “in all material respects” (strong) or “in all respects”, except where
such breach would not constitute a “Material Adverse Effect” (weak)
• Diligence
✓ Reps tend to “focus a seller’s mind”
✓ Schedules list exceptions to the reps and help focus diligence
✓ Schedules may force affirmative disclosures – e.g., contracts, independent contractors, insurance claims
history, etc.
• Risk Allocation
✓ Buyer will ask Seller to rep to matters it is not certain of
✓ Purpose is to allocate risk regarding matters to Seller
o Frequently a matter of argument in negotiations between Buyer and Seller
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REPS AND WARRANTIES: PURPOSE

32
REPS AND WARRANTIES: The“Knowledge”
Qualifier
• A “knowledge” qualifier is intended to shift the risk of the unknown from the Seller to the Buyer
Example: “To the Seller’s knowledge, none of the Seller’s products that are or have been designed, created,
developed, assembled, manufactured or sold by Seller is infringing, misappropriating or making any unlawful
use of any intellectual property owned by any other person.”
• Be very careful to understand from the parties who bears the risk if an “unknown” becomes “known” during the
pre-closing period.
✓ If it is intended that the Buyer continues to bear the risk, then be sure to add a temporal element to the
representation.
Example: “To the Seller’s knowledge as of the date hereof, ...”

33
REPS AND WARRANTIES:The “Knowledge” Qualifier
(CONT’D)
Whose knowledge?
What level of
knowledge?
o Every person in the company?
o C-level executives?
o Who knows about the deal?
o Actual knowledge?
o Actual knowledge, after due
inquiry?
o Knowledge a person would
reasonably be expected to have
by virtue of such person’s title, or
position with, or duties
performed for, the Company?

34
REPS AND WARRANTIES: The “Materiality” Qualifier
A “materiality” qualifier is intended to shift the
risk of the immaterial from the Seller to the
Buyer
Significant difference between “material” or “in
all material respects” standard and “Material
Adverse Effect” standard
Double materiality is something Buyer should
avoid or limit

35
REPS AND WARRANTIES: Financial Statements Rep
Often considered
the single most
important rep in
an agreement
Carries with it a
whole host of
background rules
and requirements
related to
preparation and
audit
Seller should be
comfortable
representing to
financial
statements
Consider unique
situations,
unaudited
companies, place
in audit cycle

36
REPS AND WARRANTIES: Undisclosed Liabilities Rep
Broad rep intended to be read broadly
Consider whether date is from latest audit
or latest interim financials
Buyer should review Schedule of
Liabilities very carefully (avoid “narrative”
explanations of potential liabilities and
make sure there are dollar amounts
identified for each liability)

37
REPS AND WARRANTIES: Undisclosed Liabilities Rep
(CONT’D)
BUYER’S PERSPECTIVE SELLER’S PERSPECTIVE
- Allowance for doubtful accounts is an
estimate (prepared by Seller) based on
Seller’s historical collection rates and thus
should cover any amounts not collected
- Assures Buyer collection of a minimum
dollar amount (especially important if
Buyer has priced deal on A/R amount)
Seller should not guarantee the
collection efforts of Buyer
All accounts receivable of the Seller
(i) represent valid obligations of
customers of Seller arising from
bona fide transactions entered into
in the ordinary course of business,
(ii) are current, [and (iii) are fully
collectible, subject to any allowance
for doubtful accounts.]”

38
REPS AND WARRANTIES
10b-5 / Anti-sandbagging rep
• 10b-5
✓ States that reps do not contain any material misstatements or omissions.
✓ In a stock deal, Rule 10b-5 may be present by operation of law
o Rep creates a contractual claim with indemnity obligations
✓ Seller will try to avoid giving a 10b-5 rep because it “swallows” the other negotiated reps
• Anti-sandbagging
✓ States that buyer does not know of any untrue reps
✓ Seller seeking to avoid “close and sue”
✓ Buyer will try to avoid giving an anti-sandbagging rep to avoid disputes about “ what did the buyer
know” prior to Closing

39
REPS AND WARRANTIES: Schedules
• Carve out from reps and indemnity
• Disclosure
Two
Purposes
• Disclosure for one rep satisfies
another?
Cross
Reference
Provision

40
COVENANTS: Two Types
Pre-
Closing
Post-
Closing

41
COVENANTS: Pre-Closing
Operation of the Seller’s Business
“During the pre-closing period, Seller shall conduct its business in the ordinary course and shall
not take the following actions...”
Seller’s Perspective:
• Seller needs to ensure that it can operate the business in a manner that will not leave it
unduly damaged in the event the deal does not close
Buyer’s Perspective:
• Buyer will want certainty that Seller’s financial and business condition is substantially the
same at closing as at signing

..,,,
COVENANTS: Post-Closing
• Anti-Trust Regulatory Approvals
• “The parties agree to take all actions necessary to obtain all applicable U.S. and approvals
in connection with the Merger.”
• Buyer’s Perspective:
• Buyer may not be able to find purchaser/acceptable price for business unit if
divestiture is required
• Seller’s Perspective:
• Immaterial divestitures required by regulators should not give Buyer a “walk” right
© 2018 by DailyDAC, LLC d/b/a Financial Poise Webinars™ 42

Access
“The Company will make its facilities and personnel reasonably available to the Buyer
during normal business hours.”
Buyer’s Perspective:
• Buyer wants to start integration planning
Seller’s Perspective:
• Seller needs to keep running the Company well to make sure conditions are met
• Seller does not want Buyer to engage in fishing expeditions prior to closing
• Seller does not want Buyer indirectly operating business - through contact with its
employees, soon to be Buyer’s employees – until business is actually sold
43
COVENANTS: Pre-Closing

44
COVENANTS: Post-Closing
Tax cooperation
Asset transfer cooperation
Publicity
Non-compete
Employee matters
Other

45
INDEMNITY: Key Issues
•Breaches of reps and warranties
•Breaches of covenants
•Specific indemnity items (e.g., litigation
which has been disclosed by Seller)
Indemnification
for what?
•Joint or several
•Survival or representations and
warranties
•Caps (i.e., maximum amount of
recovery)
•Baskets/Thresholds
•Escrow as source of recovery
Limitations

46
INDEMNITY: Survival
Survival Periods typically range from 6 months to 36 months, tend to be
12 months to 18 months
Parties should focus on “business realities” when negotiating length of
survival period (i.e., how long will it take before Buyer has a sense
whether representation has been breached?)
Certain representations and warranties may survive until the applicable
statute of limitations (e.g., tax, ERISA, environmental)
Other representations typically survive forever (e.g., ownership of the
shares, capitalization of Target (in stock deal), authorization of
transaction)

47
INDEMNITY IN GENERAL
• Seller will typically try to cap Buyer’s recovery for indemnity claims to a portion of the purchase price
(e.g., the amount of the escrow, fixed dollar amount, % of purchase price, etc.)
• Baskets/Thresholds
✓ Intended to discourage immaterial claims
✓ Amount typically reflects an agreed upon dollar amount, which is typically based on a percentage of
the purchase price
✓ A proxy for materiality?
• Sole remedy provision
✓ Fraud carveout
✓ Generally used when Buyer believes Seller may not be able or willing to meet potential
indemnification obligations or Buyer is unwilling to go through the process of collecting from seller

OUTLINE
Earn-Out Provisions
Antitrust Issues
Intellectual Property Issues
Employment Issues
Financing the Transaction

EARNOUTS
49
• A pricing mechanism with a portion of the final purchase price contingent upon actual post-
sale events
• Key characteristics:
✓ Identified achievement criteria
✓ More common in sale of privately-held companies
✓ More frequent in deals with transaction value below $250 million
• Used when:
✓ Buyer cannot effectively value business or Seller and Buyer cannot agree on valuation, so
Buyer ties purchase price to future performance
✓ Buyer has insufficient cash for payment of full purchase price at closing

RATIONALE FOR EARNOUTS
50
Used by Buyers and Sellers to
bridge valuation gaps
•Rewards Seller if projections are accurate
•Limits overpayments by Buyer for business that
fails to achieve projections
May be particularly useful in the
following situations:
•Volatile industries
•Unproven product, technology or contract pipeline
•General economic uncertainty
•Undercapitalized Buyer

EARNINGS CRITERIA
51
Typical performance criteria
include: net revenues, net
income, EBIT, EBITDA,
earnings per share, or net equity
thresholds
Non-financial benchmarks
for early stage companies
Should be easily measured
and
confirmed

WHAT IS THE PURPOSE OF ANTITRUST LAWS?
52
1. Antitrust and Competition laws have been adopted in more than 100 countries
2. The basic premise of the US antitrust laws:
The unrestrained interaction of competitive forces will yield the best allocation of our economic
resources, the lowest prices, the highest quality and the greatest material progress...
Northern Pacific Railway Co. v. United States, 356 U.S. 1, 4 (1958)
3. The US antitrust laws are meant to protect competition for the benefit of consumers (but not to protect
competitors). They prohibit:
• Agreements to restrain trade (e.g. price-fixing, group boycotts)
• Misuse of market power (monopolization)
• Price discrimination (under certain circumstances)
• Mergers or acquisitions that substantially reduce competition

WHO ENFORCES THE ANTITRUST LAWS?
53
US Agencies:
Federal Trade
Commission &
US Department
of Justice,
Antitrust Division
States’
Attorneys
General
Foreign
competition
law agencies
(more than
100)
Private
lawsuits
(including
class actions)

MERGER REVIEW- SECTION 7 OF THE CLAYTON
ANTITRUST ACT OF 1914
54
1. All mergers, acquisitions, and joint ventures are subject to government review, at both Federal and State level
• Only one federal agency reviews any transaction; multiple States may review
• Even if not subject to prior notification, US agencies can challenge
• Private parties can object and can file suit to challenge
• Challenges can be brought either before or after closing
2. Antitrust laws prohibit acquisitions and combinations the effect of which may be “substantially to lessen competition” in any line
of commerce in any section of the country.
3. Hart Scott Rodino Act Filings (HSR Filings)
• Section 7A of the Clayton Act requires parties to file a notification and pay a filing fee with the FTC and the DOJ prior to
closing a merger or acquisition that meets the HSR size of transaction and size of person thresholds, which are adjusted
annually. For 2012, the “size of transaction” threshold is $68.2 million (value of voting securities or assets to be purchased by
buyer) and the “size of person” threshold is $136.4 million in gross annual sales (at least one party to the transaction)

55
BUYER’S CONSIDERATIONS
How important is IP to the transaction?
Conduct an internal IP audit to identify needed intellectual property assets and rights
Evaluate transaction structures
Prepare confidentiality agreement and purchase agreement (for negotiated transaction)
Chain of title clearance and issues addressed
Maintenance/Validity of all IP to be transferred
Identify all agreements with IP ownership or transfer obligations and rights
Varied level of diligence based on nature of transaction

PURCHASE AGREEMENT
56
• Limiting post-closing liabilities
• Retaining intellectual property
needed to conduct other businesses
• Obtaining everything necessary to
conduct the business
• Limiting assumed liabilities
(infringement claims) and
protection of purchased IP post-
closing
Seller’s Concerns Buyer’s Concerns

POTENTIAL LIABILITY FOR A BUYER MAY
ARISE FROM SELLER’S:
57
Defined benefit plans
Multi-employer pension plans
Retiree medical or life insurance plans
Severence plans
Executive and equity compensation
plans/agreements
International employee benefit plans
(other than statutory benefits)

NATURE OF TRANSACTION GENERALLY
CONTROLS: STOCK PURCHASE
58
• Buyer assumes plans/agreements of target by operation of law.
✓ Assets of liabilities go to Buyer
✓ Assess potential liabilities (may impact price)
• Consider effect of the acquisition on employee benefit plans, employment agreements,
equity arrangements, etc. at target
✓ Identify benefits triggered by change in control (single or double trigger)
• Consider whether pre-acquisition plan termination is appropriate
• Important to know if there are limitations on what Buyer can do with target plans post-
closing of if there are significant costs that arise from post-closing terminations.

NATURE OF TRANSACTION GENERALLY
CONTROLS: ASSET PURCHASE
59
• Buyer purchases only those assets and assumes only those liabilities specified under the
purchase agreement.
• Unless Buyer assumes an obligation relating to a benefit plan, the acquisition will not
automatically result in assumption of liabilities.
✓ COBRA (health care continuation) coverage may be required in certain instances
✓ Potential defined benefit plan/controlled group liability even if pension plan not
assumed.
✓ Buyer should still assess potential liabilities, because it may get sued (even if the claim is
not successful)
• If Buyer assumes plan/agreements, treat assumption same as stock purchase.

CONTROLLED GROUPS
60
Target company will have joint and
several liability with respect to certain
ERISA liabilities with other members
of Target’s “controlled group”.
In general, affiliates that have 80% or
more overlapping ownership are part
of a controlled group.
• As a result, liabilities
assumed by buyer may be
broader than those at
target company level.
• Title IV (pension plan).
• COBRA obligations.

DEFINED BENEFIT PENSION LIABILITIES –
NON-UNION
61
• Defined benefit plans are subject to Pension Benefit Guaranty Corporation (PBGC) insurance. PBGC rules are
comprehensive and complex
• Obligation of plan to pay promised benefit must be actuarially funded by the employer over time
• Complex minimum funding requirements
• Plan Terminations
✓ In general, a tax-qualified defined benefit plan cannot be terminated unless fully funded
✓ Exceptions to general rule may arise when all members of controlled group are bankrupt
✓ Under certain circumstances, plans may be terminated involuntarily by PBGC
✓ Liability for any underfunding in defined benefit plan upon termination will be joint and several among all members
of controlled group

MULTI-EMPLOYER PLANS FOR UNION
EMPLOYEES
62
Subject to withdrawal
liability rules, in
addition to rules
governing required
contributions
Withdrawal occurs
when an employer
ceases to participate
in a multiemployer
plan or experiences
certain levels of
reduced plan
participation
Estimating potential
withdrawal liability
can be difficult
Asset deals may
trigger withdrawal
liability unless parties
agree that Buyer will
assume liabilities of
the seller and certain
other requirements
are satisfied

• Generally subject to less extensive regulation than pension plans
• Severance liability issues
✓ Review severance plan to determine the circumstances under which severance may be paid
and the amount of/formula for determining severance
✓ Consider potential costs of future terminations
✓ Consider whether severance may be triggered merely by virtue of the occurrence of the
transaction (particularly an asset transaction), and whether steps should be taken to address
such a possibility
• Retiree Medical/Life Issues
✓ Group of employees covered
✓ Estimate of liability
✓ Ability to terminate
WELFARE PLANS – SEVERANCE AND RETIREE
MEDICAL/LIFE

EXECUTIVE COMPENSATION – IN GENERAL
64
•Starting point is determining what the
relevant agreement/plan provides for and
whether there is any discretion to
interpret provisions
Generally,
governed by
contract.
•Employment contracts/offer letters
•Individuals or other SERPs
•Stay/transaction/other bonus agreements
Employment
and Other
Agreements

65
EXECUTIVE COMPENSATION – IN GENERAL
(CONT’D)
• Stock and other equity-based compensation.
• Types of equity-based compensation:
✓ Stock rights, including stock options and stock appreciation rights
✓ Restricted stock
✓ Restricted stock units
✓ Other equity and equity-based plans
• Conversion/cash-out issues
• Tax issues
• Change in Control Arrangements/280G

66
EXECUTIVE COMPENSATION – EQUITY
Existing Award Treatment in Transaction
Target stock options Typically, cashed out-
• Holder gets cash which is taxed at ordinary rates
Less commonly, options are rolled over, in which
case-
• Tax event is deferred until ultimate exercise and
then taxed at ordinary rates

67
EXECUTIVE COMPENSATION – EQUITY
(CONT’D)
Existing Award Treatment in Transaction
Restricted shares and restricted stock units Typically, vest by their terms at closing and are
cashed out as part of transaction-proceeds taxed
as ordinary rates
Restricted stock awards may vest at closing and
shares rolled over, but vesting will still result in
ordinary taxable income
Target shares Often cashed out as part of transaction-
• Proceeds taxed as capital gains
But can be rolled over on a tax free basis
(deferring gains tax until future liquidity event)

68
EXECUTIVE COMPENSATION EQUITY –
STOCK OPTIONS
Plan/individual agreements will determine whether any or all of the following
alternatives for treatment of options are available in a given transaction:
Cancellations
•Out-of-the-money options
•Other unexercised options
•Spread only
•Payment of transaction considerationCash Outs

69
SELLER OFTEN WILL ASK BUYER FOR
EVIDENCE THAT BUYER HAS ABILITY TO
FINANCE ACQUISITION.
Such evidence commonly takes following forms:
In Letter of Intent/Term Sheet, Buyer will specify whether third party debt or
equity financing will be required, and often date by which a firm commitment for
financing must be obtained
In the Purchase Agreement, Seller may ask Buyer for a rep that Buyer has
wherewithal to close transaction and/or a covenant that Buyer will use commercially
reasonable efforts to obtain financing
If period of time exists between signing Purchase Agreement and closing
transaction, Seller will ask to be kept apprised of status of Buyer’s financing, and
Seller may ask for a pre-closing covenant to this effect

70
BUYER FINANCING CONDITION
If Buyer is in strong negotiating position or if credit markets are uncertain, Buyer
will customarily obtain a “financing condition”, which is a closing condition in
Purchase Agreement that says Buyer does not have to close transaction if Buyer
does not obtain third party financing on reasonable terms.
If closing condition is contained in Purchase Agreement, then Buyer’s financing
term sheet with bank or other financing source will often be attached to the Purchase
Agreement as exhibit and serve as basis for financing terms Buyer must accept
Buyer’s financing source (i.e., bank) will usually perform its own due diligence on
Seller’s business to ensure that collateral for loan (i.e., the Seller’s assets) is sound.

71
SELLER NOTE
If outside financing is
unavailable to Buyer, parties
may negotiate a “Seller note”,
which is agreement by Seller to
accept part of purchase price in
form of promissory note rather
than cash at closing. Seller
notes also “bridge the gap” in
valuation
Seller notes customarily have a
term of 1-5 years and constitute
20-50% of purchase price (but
sometimes more)
Seller should remember that
Seller note payments usually
are subordinate to other
obligations of company,
including financing by outside
parties

ABOUT THE FACULTY
72
PETER FEINBERG
peterdfeinbergesq@gmail.com
Peter Feinberg has more than 25 years’ experience representing primarily middle market
companies in all aspects and many sectors of merger and acquisition transactions. Mr. Feinberg has
successfully closed well over 100 merger and acquisition transactions, representing buyers and
sellers, public and privately held companies, multinational firms, family owned businesses and
private equity firms. He is a sole practitioner in San Francisco. He has previously been a partner at
Thelen Reid & Priest and Ferrari Ottoboni and Of Counsel at Hoge Fenton; and has worked in
house at NetApp and Clorox.

ABOUT THE FACULTY
73
BOB DEKKER
bdekker@insightadvisorypartners.com
Bob is a career capital markets professional and entrepreneur with extensive experience working with companies
ranging from emerging growth to large, publicly traded enterprises. Bob has been an advisor to a wide assortment
of public and private companies in the food and consumer products industries including independent and
franchise restaurants, food retailers and food packaging companies.
As a senior banker with ABN AMRO, Inc. and Prescott, Ball & Turben, Inc. (an affiliate of Kemper Insurance
Company) he arranged over $2 billion of private market transactions during his investment banking career. Bob
is a member of the Association for Corporate Growth where he co-chairs the committee responsible for hosting
ACG’s Annual Food Conference. For the past four years, Bob has served as a Super Mentor to several emerging
growth food companies that have been accepted into the Good Food Business Accelerator (part of the 1871
incubator) mentoring program, and he also serves as a member of its Steering Committee.
Bob holds a BA in Economics from Denison University. He is a FINRA Registered Representative of StillPoint
Capital, LLC and holds the Series 62, 63 and 79 registrations.

ABOUT THE FACULTY
74
ROBERT LONDIN
rlondin@jaspanllp.com
Robert Londin is a Partner at Jaspan Schlesinger LLP in Garden City, NY. As a passionate, commercial
advocate Robert counsels numerous companies in connection with their mergers and acquisitions (both
strategic and financial), financing needs and the execution of their business plans; large investment funds in
their portfolio company investments; lenders and borrowers in secured and mezzanine/subordinated debt
deals; financial concerns in capital markets transactions; emerging growth and technology companies; seed
capital and venture capital clients in connection with the formation of their investment vehicles and with
portfolio company investments; and companies and highly compensated executives in executive
compensation and separation arrangements.
Robert serves as general counsel to many clients and advisory boards including the resolution of day-to-day
legal issues and strategic planning and business development. Robert represents technology and emerging
growth clients in connection with all facets of their business plans.

ABOUT THE FACULTY
75
MARK TREMBACKI
marktrembacki@gmail.com
Mark Trembacki is the founder and Managing Principal of Risk Management Levers, Inc., a consulting firm focused on
strategy, risk management, acquisition integration, and change management. He is an adjunct professor at the University of
Illinois Urbana-Champaign teaching Enterprise Risk Management in the Masters of Finance program. Mark has a MBA in
Finance from The University of Chicago Booth School of Business, a BS in Accounting from The University of Illinois at
Urbana-Champaign, and is a CPA. He is a qualified SEC Financial Expert, a National Association of Corporate Directors
(NACD) Governance Fellow, and recently earned NACD’s CERT Certificate in Cybersecurity Oversight from Carnegie
Mellon University’s Software Engineering Institute. Mark also completed a Cyber Security Management Graduate
Certificate from the University of Virginia in December 2017. Mark is the Board Chair at the DuPage Children’s Museum
and a trustee of the Chicago Historical Society (Chicago History Museum).

The material in this presentation is for general educational
purposes only.
It has been prepared primarily for attorneys and accountants for
use in the pursuit of their continuing legal education and continuing
professional education.
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Structuring and Planning the M&A Transaction (Series: PRIVATE COMPANY M&A BOOT CAMP 2018)

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