1. Praxisbericht und Vortrag von Management Buy Out How do I handle an MBO – Practical experiences Dr. Thomas Pultar, CEO of Biomeva GmbH Hans-Joachim Philipp, Bachelor of Commerce, tax accountant/CPA WISTA AG partner &

2. Management Buy Out Motivation Factors from the Buyers Perspective Independence – Gaining decision-making freedom – Entrepreneurial thinking Financial opportunities

3. Management Buy Out From the Idea to the Implementation Financing planning and recommendations for an optimal financing structure Financing partners Optimal tax concepts Legal advice – Confidentiality agreements – Letters of intent – Credit and security agreements – Purchase agreements

4. Management Buy Out LBO = Leverage Buy-Out Company purchase using a high Proportion of borrowed capital/ debt reduction using future cash flow from the target company MBO = Management Buy-Out Internal management acts as (co-) purchaser of the company MBI = Management Buy-In External management acts as (co-) Purchaser of the company Markets - Corporate succession in family-operated companies - Corporate subsidiaries (spin-off/restructuring)

5. Private limited company (e.g., GmbH & Co. KG) No material differences between SD and AD from the perspective of commercial law From the standpoint of civil law, an SD is more easily structured. => SDs regularly employed for private limited companies Individual enterprise Only an asset deal is possible Management Buy Out Target company Corporation Share Deal (SD) Share purchase Asset Deal (AD) Purchase of individual assets Coflict of interest between Buyer and seller for taxation reasons

6. Management Buy Out Share Deal Asset Deal Seller Buyer Corp: 95 % exempt from capital gains tax and tax on profit Sole proprietor: Only 50 % exempt fro tax on profit; income tax due No depreciation potential Finance costs can be fully deducted in the case of corporations, but only 50 % for sole proprietors Fully taxable at the corp. level. Subject to capital gains tax (approx 16 %) and tax on profit (25 % plus 5,5 % solidarity contribution) Upon profit distribution to the partners (legal individuals) again subject to 50 % income tax Depreciation potential Finance costs can be deducted Impractical PracticalImpractical Practical

7. Calculation and distribution of the sellers tax advantage Purchase of shares in TargetCo GmbH by a NewCo GmbH; profit-and-loss transfer agreement (EAV) between TargetCo GmbH and NewCo GmbH => Finance costs fully deductible. TargetCo GmbH ABC Management Finance costs are 100 % deductible. NewCo GmbH Purchase business shares EAV Bank Finance costs Characteristics of NewCo GmbH: - Established with equity capital - Bank provides loans directly to NewCo - Thanks to EAV no tax-free income from investments, but instead, the TargetCo results are offset against the interest expenditures of NewCo GmbH Taxable entity Management Buy Out Loan However: The boundary between Shareholder/third party financing must be observed (§ 8a of the capital gains tax code) Exemption limit: 250,000 Changes are being planned!

8. Management Buy Out PreparationMBO-strategy, offer Letter of Intent Due diligence examinations Closing Feasibility examination Preparation of a business plan (3-5 years) Company valuation Analysis and preparation of the MBO structure (from buyer or sellers Offer Defining the transaction structure Financing discussions LOI Due diligence (legal, tax, finance) Preparation of the final financing Contract preparation Final contractual negotiations Closing: transaction concluded ~ 2 months~ 1 month1-2 months 1 month Principle decision (management, private equity partner) Indicative offer Exclusivity agreement with partners board (time limited) Binding offer Contracts Closing

9. Management Buy Out Seller Dr. Thomas Pultar BIOMEVA GmbH & Co. KG investor company (private investors) BIOMEVA Holding GmbH Heidelberg (new firm) BIOMEVA GmbH, Heidelberg Deutsche Bank, Seller loans and MBG Outside capital Purchase price Equity capital and loans $

10. Example Parameters: Seller is an individual Equity capital/share purchase costs: 2 million Company value/purchase price: 10 million Liabilities: 10 million (are assumed) ASSET finacial Current market Undisclosed statement value reserves Residual ND x1,000 x1,000 x1,000 Years company 0 1,500 1,500 15 Land 2,000 3,750 1,750 Buildings 2,000 4,250 2,250 15 Misc. fixed assets 1,000 2,000 1,000 5 Stocks 4,500 6,000 1,500 1 Misc. Current Assets 2,500 2,500 0 12,000 20,000 8,000

11. Results Overview Seller x1,000 Buyer Tax savings through utilization of the depreciation potential x1,000 Purchase of a GmbH & Co. KG (private limited Company/sole proprietorship Share deal for a GmbH (corp.) Asset Deal for a GmbH (corp.) Taxes: 2,569 Taxes:./. 2,882 Taxes: 1.772 Taxes: 4,180 (optimal) Model for tax optimization Income: 7.431 Income: 8.228 Income: 5,820 Net purchase price: 7,118 Net purchase price: 10,000 Net purchase price: 7,584 Taxes:./. 0 Taxes:./. 2,416 (optimal)

12. Models to Optimize Company Purchases Objective: To achieve the tax advantages of the purchase of a GmbH & Co. KG for a share deal Older models Description Assesment Combination model Joint venture model Conversion model I (purchaser model) After share purchase, the seller Carries out the asset deal through a 2nd company by himself with subsequent profit distribution Further development of the GmbH by the buyer into a GmbH & Co. KG after purchase Transformation of the GmbH by the buyer into a GmbH & Co. KG after purchase Earned income tax cannot be avoided; changes in 2001 tax reform Avoids the earned income disadvantage; however, elimianted in 2001 Also eliminated by the 2001 tax reform

13. Models to Optimize Company Purchases Newer models Description Assessment Consolidation model Downstream merger Share purchase by a new GmbH & Co. KG, conclusion of an EAV, asset deal Share purchase by a subsidiary, transformation of the target company into a private limited company, merger of both companies Eliminated by the corporate tax develop- ment law High risk since it is very controversial Conversion model II (distribution model) Transformation of the GmbH into a GmbH & Co. KG prior to sale Doable, but less than optimal for the seller (note the 5-year waiting period)

14. 1.Purchase of shares by a NewCo (GmbH) to shield against civil risks (liability!) to the greatest possible extent. 2.Have a NewCo be responsible for outside financing and conclude a profit-loss- transfer agreement at the time of purchasing shares in the corporate (GmbH) (costs for outside financing are fully deductible). 3.Asset deal when purchasing a company which is registered as a corporation (GmbH) is only practical where losses can be adequately carried forward for tax purposes. 4.Purchase of a private limited company should always be in the form of a share deal. 5.Utilize the conversion model for the seller, provided the five-year waiting period can be maintained. 6.If the seller is a sole proprietor, purchase price installments may be able to be negotiated. Structuring Recommendations