saudi arabia spin off in power generation,

1. Alaman modern co. for power.
Operations
division
October 25
2015
Thisdocumentisa guidelineonhowtoproceedwiththe spinoff of the
operationsdivision.
Spin off guide
line

2. 1
Table of content
page
Objective………………………………………………… ………………..2
Appointment of managers and board members……………………….2
Capital structure (liabilities)…………………………..…………………..3
Management and Employee Matters……………………………………4
Consent Requirements……………………………………………………5
Transaction transfer Agreements………….………………………….....6
Finance and accounting…………………………………………………...7
Parties involved:
Employees
Vendors
Product
Services
Clients
Financial lenders

3. 2
Operations division
Objective: 100% spin-off of the operations division
 Independent entity
 Issue separate financial statements
 Becomes a separate legal entity with a distinct management and board.
A corporation creates a spinoff by distributing 100% of its ownership interest in that business unit as
a stock dividend to existing shareholders. This results in a full separation of the two entities in a
single transaction
A spin-off the business is transferred on an “as-is, where-is” basis.
Internal Process Considerations:
1. the selection of the spin-off company’s board of directors:
 Eng. Tahir Taj-Eldin Position G M
 Mr. …………….. Position ……………………
 Mr. …………… Position …………………..
2. Appoint managers to take active role in planning for the spin-off.
 Mr. ……………. Position ………………
 Mr.…………….. Position ………………
Focus:
 Positioning the business to be spun off in the most advantageous manner
 To negotiating the terms of the spinoff,
3. The responsibility for the spinoff
 With the parent’s board and management.
Duties of the Parent Board
 Duties of loyalty and care and must act in good faith.
 directors owe their duties to the shareholders
 Structure the transaction to Maximizes value for those shareholders.
 can make unilateral decisions as to the allocation of assets and liabilities between the
parent and the spin-off company, subject to insolvency and tax considerations,
Notes:
Appointment of spin-off directors and manager approval.
Data preparations:
 Determine start cutoff date from 01/01/2015 for intercompany related activities
 Determine area of jurisdiction to register new spin-off company
 Government approvals
Assignment:
1-………………………
2-……………………….

4. 3
Capital Structure Considerations
 The legal documents governing a company’s existing debt.
 The distribution of cash from the spin-off company to the parent , to pay off an
intercompany payable owed to the parent,
 Payments of cash to acquire assets from the parent
 The spin-off company to its parent must be further transferred by the parent creditors.
 The spin-off company may assume some of the parent’s indebtedness.
 Debt-for-equity exchange
 Debt-for-debt exchange
 From a diligence perspective,
o Review existing debt:
 to determine the limitations on assumption of the debt by each of the
businesses,
 the contours of any covenants that may limit the parent’s ability to spin off
“All or substantially all” of the parent’s assets,
 Financial maintenance tests. May be appropriate to seek consents with
respect to debt covenants.
Allocation of Other Liabilities
 contingent liabilities,
 liabilities that logically belong with each business,
 legacy liabilities that may be unrelated to any of the parent’s current businesses
Solvency and Surplus
In allocating debt and liabilities:
 Ensure that the spin-off company (and the parent) are viable and that any Solvency risks
relating to either entity have been considered.
 the allocation of cash, cash equivalents
Notes:
Assignment:
1-…………………….. List of all liabilities, and contractual obligations
2-

5. 4
Management and Employee Matters
 Composition of new Management
 Allocation of Other Employees and Employee Benefits
Issues inherent in separating the employee population are
- Primarily legal,
o the allocation of employees,
o Benefits and benefit plan assets.
- The spin-off company must also determine :
o the new compensation arrangements
o Employee benefit plans .Those plans could accept transfers of liabilities related
to the spin-off company’s employees from the related parent plans, as well as any
associated assets.
Notes:
1- Administrative organization chart
2- Operations organization chart
3- Finance and accounting organization chart
4- Logistics supply chain organization chart
5- Labor law
6- HRM
Assignment:
1-………………….list of all operations staff with full employment data (file assembly)
2-………………….. Skill chart and job descriptions.

6. 5
Consent Requirements
- separation require the assignment of :
o assets,
o contracts and other rights,
o leases,
o guarantees,
o letters of credit,
- reviewed to determine the degree to which consents to assignment will be required,
- New agreements with counterparties will need to be entered into by both the parent and the
spin-off company.
- Agreements reviewed to ensure that there are no provisions that would be unacceptable
following a spin-off or sale
- Government contracts,
o For any novation rights and security clearance issues in connection with a
proposed assignment (definition below)
o Change of control.
o If governmental consents will be required in connection with the separation of
the businesses to be spun off and
o The ability to obtain such consents before the date of the spin-off.
I. Intellectual Property
o patents held by or licensed to the parent
o if the parent is a licensee
o Or if both companies need to share the intellectual property.
o The use of trademarks and tradenames by the businesses to be separated.
L. Shareholder Vote
A spin-off does not constitute a sale, lease or exchange therefore, stockholder approval is
generally not required.
Notes: legal advice
Assignment:
1-…………………….
2-…………………….
Definitions:
Novation rights:
Payment issues may arise if a Novation or Change-of-Name Agreement is not processed at the
time of the change.

7. 6
Transaction Agreements
The terms of any intercompany arrangements, must be at arm’s-length terms and pricing.
1. Employee agreement
2. Tax agreement
3. The supply of
a. services
b. systems
c. materials
d. equipment, etc.,
Separation and Distribution Agreement
o Identify assets to be transferred,
o Liabilities to be assumed
o Contracts to be assigned
o When and how these transfers, assignments will occur.
o All liabilities primarily related to [the spun-off business)
o Schedules (lists of real properties, patents, etc.)
o Working capital or other balance sheet adjustment for the business to be transferred on
an “as is, where is” basis—
o Will provide for cross-indemnities to place financial responsibility for the obligations and
liabilities of remaining business.
o In general, each party assumes liability for all pending, threatened and un-asserted legal
matters related to its own business or it’s assumed or retained liabilities.
o Obligations with retention of information and confidentiality
o With insurance matters, including allocation among the parties’ claims or occurrences
and procedures for the administration of insured claims.
Transition Services Agreement
Cover services that are shared by the businesses to be separated,
o Legal,
o Payroll,
o Accounting
o Administrative
o Other support services
o Service standards, termination and renewal
o Rights, liability limitations and indemnification,

8. 7
Finance and accounting.
Project#...
The selling price………………………..concession value
Less cost of goods……………... cost of operations
Equal gross margin…………………… cash for distribution
Less ……………………………..loans
Less ……………………………..dividends
Definitions:
Operations business is:
1. Job order
2. Cost plus contract
3. Process plant continuous output
4. Availability based tariff
a. Generation target setting
b. Plant level budgeting
c. Cost management
d. Inventory management
e. Condition based maintenance
5. Zero down time
6. Performance
7. Efficiency
8. Quality
9. Cost control
a. Activity based costing
Accounting system to be installed:
1. Project based accounting
2. Standard accounting system
Financial management:
Operations contracts pricing should be:
1. Take or pay contracts
2. An availabilityfee:The availabilityfee isa fee payable by the projectowner to the sponsor in
considerationof the sponsor making the infrastructure available,irrespective ofactual
throughput.
3. A usage fee.The usage fee regulatesthe price per unitthat the projectowner will pay for the
actual amount of product suppliedtoit.
Al Aman will want the availabilityfee to cover all or at leasta substantial part of its fixedcosts.
The usage fee will cover the balance offixedcosts (ifany) and the variable costs.

9. 8
4. Contract may involve :
a. Design
b. Civil
c. Delivery
d. Installation
e. Connecting should have a charge for each service.Not givenfor free.
f. Testing
g. Commissioning
h. Start up
i. Fuel supply
Winninga job will resultin a longterm contract fixed income stream that can be usedto finance the
project by use of:
OFF TAKE AGREEMENT.
Project cash management:
Head office isthe financial concessionmanager.
They act as a bank
Each projecthas an account inhead office
Moneybelongto the project is dedicatedsumsfor the project.
Financingfor project is a liabilityfor the projectand involvescash sweepsto settle the debtfinancing.
Other financial managementand accounting rulesand regulationswill be installedat time of
formation of the chart of accounts.
Let us discuss this document.
Regards
Akbar
internals concent assighnment shared services Transaction Agreements capital structure financing
1 specify assets to be transferred 1 contracts 1- assets 1 legal 1
a- separation &
distribution agreements 1 zakat effect ideal terms 4 debt
2 liabilities 2 rights
2- contracts
and other rights
2 finance 2 sagia tax
initial discussion-
invest,bank
3 identify personnel 2 B be transferred, 3 creditors 3- leases 3 human resources 3 loan agreements rating agency
4
separate employee benefits plans
4
governmet
contracts 4- guarantees 4 continuing supply
4 peyment of inter-
co. acct/pay
get investment
grade rating
5 5 3rd. Party 5- L/Cs 5 technology sharing 5
pay 4 fix.assets from
parent due diligence
6 6
degree of
concent to
assignments 6 commercial agreements 6
financial capital
maintenance
7 7 7 operating agreements 7 solvency opinion
8 8 8
9 9 9
10 10 10