1. babc.com ALABAMA I DISTRICT OF COLUMBIA I FLORIDA I MISSISSIPPI I NORTH CAROLINA I TENNESSEE Selling your Business? Now or in the future? – What you need to know! George A Smith, II gsmith@babc.com April 2, 2015

2. © 2015 Bradley Arant Boult Cummings LLP What is the Process?  Some amount of disclosure –Need a Confidentiality Agreement in place at all times.  Letter of Intent or Term Sheet –Very important step because you can frame some of the issues  Due Diligence –This can be frustrating to the Seller  Definitive Agreements negotiated and executed  Notifying the customers and other shareholders  Closing Conditions must be met –Often required to obtain consents from third parties –Governmental Approvals (i.e., Hart-Scott-Rodino Approval)  Closing

3. © 2015 Bradley Arant Boult Cummings LLP  Important to have a team that can work together –There are several different areas that require specialized knowledge and understanding (i.e., ERISA, environmental, taxes). –Confidentiality is crucial –Speed can be important  Team should consist of persons inside the company –Should the Board of Directors be made aware of the possible transaction? –Normally the chief financial officer will be involved.  Team should consist of persons outside the company –Investment Bankers –Outside accounting firm –Legal Who Should Be Involved?

4. © 2015 Bradley Arant Boult Cummings LLP  An Investment Banker can help with the process. –Often help with pricing the deal and Fairness Opinion  Engagement Letter –Often has a tail period –Need to get Board of Directors approval  Fee often based on sales price Investment Bankers

5. © 2015 Bradley Arant Boult Cummings LLP Confidentiality of Information  This issue can easily be overlooked.  Information that is disclosed in the process could be proprietary.  Do not forget to immediately have a confidentiality agreement executed if you are disclosing any company information. –May want to try to include non-solicit of employees or customers

6. © 2015 Bradley Arant Boult Cummings LLP  Important step –Best to get the issues out on the table  Non-binding except as to certain provisions: –Expenses and costs –No Shop Provision –Confidentiality  Should set out the structure of the acquisition: –Tax Issues –Important to make sure Legal and Tax Advisors are involved whenever the structure is discussed and decided.  Need Board Approval of LOI  Break-up Fee Letter of Intent / Term Sheet

7. © 2015 Bradley Arant Boult Cummings LLP Due Diligence  Not the best time to be doing corporate cleanup.  This step is crucial.  Issues that often arise during this period: –Stock/Equity Compensation Issues –409A Issues –Lack of Minutes of meetings –Lack of other corporate documentation on actions taken –ERISA Issues –Assignability / Novation of important contracts Change of Control Provisions vs. Assignment Provisions

8. © 2015 Bradley Arant Boult Cummings LLP  Letter of Intent should give the framework for the Definitive Agreements  Examples of Definitive Agreements: –Purchase Agreement –Employment and Non-Compete Agreements –Escrow Agreement –Bill of Sale –Assumption of Liabilities Agreement –Real Estate and Equipment Leases Definitive Agreements

9. © 2015 Bradley Arant Boult Cummings LLP Additional terms the Definitive Purchase Agreement contains: – Representations and Warranties - look to the past and the current Sets out the liability for the seller Need for good disclosure schedules – Covenants - look to the future – Indemnification process and details Need to be very clear and detailed Time period for indemnification (statute of limitations) Caps on liability and possible basket Definitive Agreements

10. © 2015 Bradley Arant Boult Cummings LLP Definitive Agreement  Definitive Purchase Agreement will set out certain conditions for closing. –Consent required for transaction –Novation Issues –Assignment Issues (ex. Leases) –Acquirer has meeting with certain customers –Release of Bank or other financing liens –Appropriate corporate governance approvals –Employment issues

11. © 2015 Bradley Arant Boult Cummings LLP  In general, as to the Target, the Definitive Agreements will need to be approved by the Board of Directors and the Shareholders. –Dissenters Rights (a/k/a appraisal rights)  In general, as to the Acquirer, the Definitive Agreements will need only Board approval. Approval of Definitive Agreement

12. © 2015 Bradley Arant Boult Cummings LLP  Unrealistic expectations  Poor Communication leads to misunderstandings –One reason for a good team and a good LOI  Target is not prepared –Poor corporate records –Poor financial information/records  Takes too much time – things change  One side believes it has the upper hand  Non-compete issues for employees/retention  Different cultures  Financing issues Why Transactions Do Not Close?

13. © 2015 Bradley Arant Boult Cummings LLP Basic Items to Consider  Have a good Board of Directors and Advisors.  Have an organizational chart.  Put in place appropriate controls.  Have accurate financial statements and data.  Look for Assignment / Novation Issues.  Look for Change of Control provision in agreements.  Incentives for employees and management team.  Consider non-competition issues.  Better to find your problems now.  Think of the end game now.