BLA COMMERCIAL LAW PROGRAMME SESSION 16

1. 1 BLA COMMERCIAL LAW PROGRAMMESESSION 16 ANATOMY OF AN ACQUISITION AGREEMENT Johannesburg: Cape Town: Linda Robinson Bob Smith Banzi Malinga Mohamed Darsot August/September 2008

2. 2 WHO? WHAT? HOW MUCH? WHO? Parties Who is a necessary party? Who is primarily obliged? Who will guarantee?

3. 3 WHAT? Subject Matter What is being sold? What is not being sold? Watch the definitions What liabilities are/are not being assumed?

4. 4 HOW MUCH? Price How much? How paid? When? How adjusted? � Working capital and other adjustments How allocated? Deposits and Holdbacks

5. 5 THE FOUR HORSEMEN Conditions Covenants Representations and Warranties Indemnities

6. 6 CONDITIONS Here is what you are entitled to or what must happen prior to closing and if you don�t get it or it does not happen, you can walk away from the deal: Mutual Conditions � eg., Regulatory (eg., competition), if not obtained, often neither party is in a position to close Conditions for Purchaser�s Benefit � often have extensive conditions � essential conditions include the delivery of assets and all things necessary to operate the business; section 228 condition; sometimes includes due diligence conditions and financing conditions; authority of the Vendor to complete transaction Conditions for Vendor�s Benefit � more limited number � essential conditions are that the purchase price is delivered and authority of the Purchaser to complete the transaction

7. 7 COVENANTS Two types: Covenants relating to the closing � I.E., Here is what I am committing to doon closing; Eg., delivery of purchase price (Purchaser); delivery of assets (Seller); other closing deliveries (both)

8. 8 Covenants Cont�d 2. Covenants relating to the interim period between signing and closing. I.E., Here is what I am committing to do (or not to do) between signing of the agreement and closing. Eg. �The Vendor covenants and agrees: to permit the Vendor and its agents reasonable unrestricted access to the employees and assets of the Purchased Business; to conduct the Purchased Business in the ordinary course consistent with past practice and not to take any of the following actions without the written consent of the Purchaser: (a) enter into any Material Contract; (b) �

9. 9 REPS & WARRANTIES OF THE VENDOR Purpose � (1) Disclosure; (2) Basis of Walkaway; (3) Basis of Indemnity Here is what my business is about at this point in time: Eg.: �The Vendor represents and warrants to the Purchaser that: (a) the Vendor is the sole legal and beneficial owner of the Purchased Assets with good and valid title free and clear of all Encumbrances and is exclusively entitled to possess and dispose of same, [subject to scheduled exceptions]; (b) the Contracts listed and described in the Disclosure Schedule are all the Contracts material to the Purchased Business�; (c) �

10. 10 6 KEY REPRESENTATIONS Enforceability of the obligation Title to and ownership of all assets [and shares] Financial condition/statements of the Business Absence of undisclosed liabilities Sufficiency of assets Compliance with all laws

11. 11 INDEMNITIES Recourse for breaches of the agreement discovered after the closing Purpose - clarity - to include expenses - to frame particular remedies - to include all matters for which Vendor wants recourse - to specify the process

12. 12 INTER-RELATIONSHIPS OF THE 4 HORSEMEN Representation & Warranty The Vendor represents and warrants to the Purchaser that since the date of the Financial Statements, it has not taken any of the following actions: paid a dividend or made any other distribution � �

13. 13 INTER-RELATIONSHIPS - 2 Covenant The Vendor agrees and covenants that from the date hereof [the date of signing] it shall not take any of the following actions: pay a dividend or make any other distribution � �

14. 14 INTER-RELATIONSHIPS - 3 Condition It is a condition of closing for the benefit of the Purchaser that (a) all representations and warranties of the Vendor are true and correct [in all material respects] as of the date they were made and as at the date of closing, and (b) all covenants of the Vendor have been performed. Eg. If the Vendor had declared and paid a dividend, the Purchaser is not obliged to complete the transaction.

15. 15 INTER-RELATIONSHIPS - 4 Indemnity The Vendor hereby indemnifies the Purchaser in connection with any breach by the Vendor of any provision of this agreement including any representation, warranty or covenant contained herein. Eg. If the Vendor had paid a dividend, the indemnity would permit the Purchaser to claim all damages associated with the breach.

16. 16 QUALIFICATIONS FOR REPRESENTATIONS A Vendor should not represent a better business than it is selling Standard qualifiers to protect the Vendor from over-representing: Materiality Knowledge Judicious use of disclosure schedule

17. 17 CLOSING The closing date and any obligation to extend Drop dead date or long stop date Closing obligations and deliveries Suspensive conditions matrix Closing agenda/checklist and closing agreements

18. 18 OTHER Definitions and Interpretation Further Assurances Dispute Resolution � Arbitration; Mediation; Litigation Governing Law Boilerplate � Do not ignore the standard provisions

19. 19 Relevant Statutes Competition Act � (regulatory compliance and filing requirements for approval for transactions over certain thresholds) Insolvency Act � Section 34 (requirement to publish sale in the newspaper to advise creditors) Labour Relations Act � Section 197 (addresses the transfer of employment to the successor purchaser) Value-Added Tax Act � Section 11(1)(e) (structure to achieve a zero rating so no VAT is payable) Companies Act � Sections 228

20. 20 APPENDIX A Table of Contents of an Asset Purchase Agreement